EU VAT Quick Fixes Update
Quotation marks come in handy when describing Europe’s current and future value added tax (VAT) system. The current system, adopted in 1993, was intended to be “transitional.” Today, 25 years later, the European Commission (EC) is working to finalize a massive VAT reform that began in earnest with its 2016 VAT Action Plan. The most recent progress on this reform concerns four so-called “quick fixes” that have been rather slow to get off the ground.
Last October, the Economic and Financial Affairs Council (ECOFIN) indicated that the quick fixes should be enforceable by January 2020 rather than January 2019, as the EC had previously proposed. These quick fixes, which the EC maintains “should reduce compliance costs and increase legal certainty for businesses,” are as follows:
- A simplification and uniform treatment of call-off stock arrangements, where a vendor transfers stock to a warehouse at the disposal of a known acquirer in another European Union (EU) Member State. Conditions for the simplification to apply are that the vendor is:
- Not established in the Member State where the warehouse is located; and
- The acquiring party is VAT registered in that Member State.
In principal, such transfers will not qualify as a supply of goods. However, if the goods are not sold after 12 months, a taxable intracommunity transfer of the goods will need to be reported.
- Uniform criteria will be added to determine in which supply of a chain transaction the shipment of goods occurs. A legal assumption will be introduced implying the intracommunity supply is performed by the middleman party organizing the transport of goods, unless the middleman party is VAT registered in the Member State of dispatch and informs the dispatching party about its VAT identification number.
- New uniform rules within the European VAT area to prove the transport of goods related to intracommunity supplies.
- In addition to proof of transport, the valid VAT identification number of the business acquiring the goods is a condition for applying the tax exemption in respect of intracommunity supplies.
When initially proposed, three out of four of the quick fixes would only be applicable to transactions involving Certified Taxable Persons (CTP). The to-be-introduced new concept of CTP was intended to certify companies that prove to be compliant with different tax obligations, such as timely and regular payment of taxes, reliable internal control systems and proof of solvency.
The quick fixes were discussed extensively during October’s meeting of the EC . The Council reached agreement that the quick fixes will take effect January 1, 2020 and will not be dependent on the qualification of the parties as CTP. The Council adopted the measures unanimously and on December 7, 2018, published three different instruments related to the quick fixes on the Official Journal of the European Union.
We’re continuing to monitor VAT reform developments and we’ll keep you posted as the situation continues to develop.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.
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