Chain Transactions

The cross border buying and selling of goods within the EU can be an exercise fraught with difficulties – not least from the VAT perspective.

However, Accordance has years of experience and expertise to rely on in order to advise businesses on how to get their VAT reporting right. It also has an in-house multilingual compliance team to help manage those VAT compliance obligations which are created, thereby minimizing risk and costs for those businesses concerned.

Chain transactions

VAT is particularly difficult to manage when “Chain transactions” occur. These are supply chains where there is one cross border movement of goods, but a change in ownership of the goods happens twice during that transport. It becomes important to determine which party to the transactions makes the cross border movement of the goods because this determines the VAT treatment of both supplies.

One instance of Accordance utilizing its unique blend of consulting and compliance expertise occurred when we helped a business which was involved in transactions that saw goods being moved from Italy to Germany. Our client was a German business who had won a new contract to supply products used in the oil industry to a customer also in Germany. However, to make the supply it needed to first purchase the items from a supplier in Italy.

Unforeseen Costs

To ease and also speed up the delivery process, our client had agreed that it would pick up the goods from the supplier’s factory in Italy. However, the supplier let our client know that on this basis, they would be charging them Italian VAT. Our client was not expecting to incur this cost and hence turned to us for advice on how to either avoid it or recover the amount in the most efficient way.

To assist our client we reviewed the transactions in order to conclude the VAT treatments that should apply and hence determine on whom the compliance obligations sat with. This work led us to conclude that as per the current arrangements our client needed a VAT registration in Italy and that consequently, it could therefore recover the Italian VAT on a return in Italy. However, this would lead to increased costs and compliance work for the client which was not ideal.

Leveraging ECJ Cases

To improve the client’s position we provided value by demonstrating that, if details of the supply chain could be amended, an Italian VAT registration could be avoided. Our advice centered on how the goods were transported and relied on several European Court of Justice (ECJ) cases as its basis. Our client implemented the changes and did not need to register for Italian VAT. This treatment was also accepted by the supplier who stopped charging Italian VAT – a good result for all parties, as compliance obligations and costs were minimized.