On 19th April 2018, the Court of Justice of the European Union (CJEU) held in Firma Hans Bühler KG (Case C-580/16) that the simplified triangulation rules may be applied if the intermediary party in a cross-border supply chain is registered for VAT in the EU Member State of dispatch of the goods.
General Simplified Triangulation Rules
The general simplified triangulation procedure concerns the involvement of three businesses, in different Member States, that are part of a classic cross-border supply chain, where the goods are dispatched directly from the first supplier to the last customer. Subject to certain conditions, use of the measure removes the requirement for the intermediary party to VAT-register in either the Member State where the goods are despatched from or delivered to. Instead, the other parties in the supply become liable to report the VAT on the supply.
However, until now there has been ambiguity as to whether the simplification rules apply if the intermediary party is VAT-registered in the Member State of dispatch of the goods (in addition to being registered in a different Member State, which allows for the simplification to take place). Tax authorities in different Member States have been inconsistent in their approach to allowing the rules to be used.
Background to the Case
Hans Bühler KG was resident in Germany and registered for VAT in both Germany and Austria. It participated as an intermediary in a cross-border supply chain buying goods from German suppliers and reselling them to a Czech customer, with the goods being sent directly to the Czech customer. It used its Austrian VAT number to apply the triangulation simplification rules. However, Hans Bühler KG delayed in the filing of its EC Sales Lists and initially failed to note the transaction to the Czech Republic as a triangulation sale. It later rectified the omission.
The Austrian tax authorities rejected the use of triangulation on two grounds: Firstly, under Austrian VAT law, the simplification scheme is not applicable if the intermediary party is resident in the country of dispatch. Also, since the recapitulative statements had not been submitted in a timely manner, Hans Bühler KG had not complied with its reporting obligations and hence could not make use of the triangulation rules.
Ruling of the CJEU
The CJEU ruled that the triangulation simplification procedure is applicable in cases where the intermediary party is registered for VAT in the country of dispatch or transport of the goods, if it uses the VAT identification number of another Member State for that specific intra-Community acquisition.
Further, it was held that failure to meet the formal EC Sales Lists requirements shouldn’t prevent the simplification rules from being exercised provided there is no evidence of tax fraud, and the substantive conditions of the exemption are seen to be satisfied.
This case is relevant for companies that take part in triparty transactions within the EU where the goods only move between two Member States. Although the judgment has provided welcome clarification on a particular issue, it also draws attention to the fact that other circumstances exist where application of the simplification rules remain unclear. Businesses should be aware that although this ruling can be relied upon, it might be the case that some Member States may not adjust their rules immediately and hence applying the triangulation rules could still be challenged in some instances.
If you are involved in a triangular transaction or have any questions on the above, please do get in touch.