Chain transactions – where goods move across borders and ownership changes at least twice in the process – are a particularly intricate issue. We work extensively with businesses with chain transactions to simplify the overly complex and ensure reporting requirements are met and efficiency is at the heart of decisions.
Cross border buying and selling of goods in the EU allows businesses to flourish. It also makes VAT responsibilities a spider’s web of complexity. Chain transactions – where goods move across borders and ownership changes at least twice in the process – are a particularly intricate issue. We work extensively with businesses with chain transactions to simplify the complexity of VAT. We ensure reporting requirements are met and efficiency is at the heart of decisions.
This can especially be the case with VAT across the EU. Although every country is, at a high level, subject to the same legislation (EU VAT Directive 2006/112EC) individual countries have sufficient scope to alter their national rules. They apply unique procedures and rules. Even where that scope doesn’t formally exist, differences in how a rule implementation also occur between EU Member States. This is a consequence of varied interpretations.
The Reverse Charge (R/C)
The R/C shifts the obligation to account for VAT on a sale from the supplier to the recipient. This is achieved by the recipient acting as if it has both received and made the supply. This is because they have to account in their VAT return for the VAT due on the sale whilst also recovering it as a cost. The R/C has the effect of removing VAT from the cash flow of transactions. Therefore it is becoming an important tool in the eyes of some tax authorities to help combat VAT fraud. This means the application of it is growing in certain territories.
New trading patterns
One of our UK clients recently started to trade with customers in France. They asked us for advice on the VAT implications of this new venture. The intended business activities saw our client importing goods into France. Then delivering them to the customer’s depots, also in France.
We advised that a VAT registration wouldn’t be needed in France. This is because of a domestic reverse charge applying when the goods were sold to the customer. However, the downside of this was that the import VAT is only recoverable via a refund directive claim. This would take some time to process and obtain compared to the relative ease of including it on a VAT return.
Optimising Supply Chains from a VAT Perspective
We review other possible supply chain options for our client. This would maintain the existing costs and time for delivery but generate higher VAT efficiencies. To this the end, we obtained a VAT registration in Spain and redirecting the imports to arrive there as well.
This slightly impacted on the logistics of delivering the goods. However this was more than offset by the fact that import VAT could be recovered on a regular basis via a Spanish VAT return whilst there was still no need to charge output tax. This was possible because of the different way that Spain applies some of its VAT rules compared to France. As a result, our client enjoyed a more efficient VAT position compared to accepting the status quo.