In our article New rules on proof of intra-Community supplies we already noted that the VAT rules around ABC transactions are being simplified. Part of the tax plans for 2020 is the bill that implements these EU rules into Dutch law.
ABC transaction
An ABC transaction is also known as a chain transaction. In its simplest form, it involves the sale of goods by party A to party B, followed by resale to party C, with the goods being shipped by party A directly to party C. Chains with more than 3 parties also occur, of course.
For VAT purposes, even though the goods are delivered directly from the first link in the chain to the last link, we are then dealing with two supplies, Each of these supplies must be assessed separately for VAT.
Across the border
Of course, that assessment poses no problems when all parties involved are established in the Netherlands. Both the supply from A to B and the supply from B to C will then be taxed with Dutch VAT.
Things get trickier when one (or more) of the party(ies) is (are) established in another Member State of the European Union and the transport of the goods crosses borders between Member States. The question is then to which of the deliveries the intra-Community transport is attributable. Only that supply qualifies as an intra-Community supply taxable at the 0% rate.
Quick fix
The EU Council recognises the problems in levying VAT around cross-border supplies. Drastic adjustments obviously take time. Therefore, four so-called quick fixes try to solve some of the bottlenecks. One of those quick fixes concerns rules for determining to which supply in a chain transaction the intra-Community transport is allocated. The other quick fixes are discussed in our article cited above.
Broker
Essential in the new regulation is the concept of intermediary trader. This concept takes on a meaning all of its own for VAT. The intermediary trader is the party in the chain, who supplies the goods:
- ship or transport yourself;
- is sent or transported by a third party (it is the party contracting with the carrier).
The main rule is then that the party supplying the goods to the intermediary makes the intra-Community supply. The place of this intra-Community supply is in the Member State where dispatch or transport of the goods begins.
If the middleman has a VAT identification number of the Member State where the transport commences, an exception applies. Then the supply made by the middleman is the intra-Community supply.
Examples
The Explanatory Memorandum to the bill contains five examples. Examination of these examples shows that the VAT issues surrounding ABC transactions are and will remain tricky. VWG will be happy to take stock with you of how the new rules will affect chain transactions involving your company. The new rules take effect from 1 January 2020.