EU VAT ‘quick fixes’

EU VAT ‘quick fixes’: A brief summary

The new EU VAT ‘quick fixes’ have come into effect. Here, our VAT specialist, Michael Ashdown takes a quick look at the key changes:

1. Simplified treatment for call-off stock

To shorten delivery times, suppliers will often transfer stock to a warehouse or other location of a regular customer in another EU Member State. The goods concerned remain the property of the supplier until they are picked up by the customer. This process is known as ‘call-off stock’.
Until now, there has been no consistent treatment for call-off stock in the various EU Member States. Under the new rules, as soon as the customer takes the goods out of stock, the supplier is treated as performing an intra-EU supply of the goods to the customer. The supplier will not, however, be required to register for VAT in the EU Member State in respect of the goods supplied under the call-off arrangements.
To use this simplification, a number of conditions must be met. The main ones are:

• the supplier does not have a fixed establishment in the country where the goods are stored under the call-off arrangement
• the delivery of the goods to the customer occurs within 12 months of the goods being shipped by the supplier.

The supplier and customer must keep a register that complies with specific conditions and the supplier must also report on its EC sales list that it supplied these goods to the customer. If a supplier does not comply with all the conditions for call-off stock, it must register and account for VAT in the normal way.

2. Simplified proof of intra-community supplies

The rules on the evidence needed to apply the zero VAT rate for supplies of goods dispatched to a business in another EU Member State have been harmonised. It will be presumed that goods were transported to another EU member state if the supplier can provide at least two non-contradictory documents evidencing the transport of the goods such as a CMR, a bill of lading or an airfreight invoice.

The complication is that the evidence must be obtained from two independent parties, who are also not connected to each other or to the parties involved in the transaction.

3. VAT identification number required for application of zero VAT rate

To allow a supplier to zero-rate an intra-EU supply of goods, the customer must now provide its VAT registration number to the supplier and the supplier must declare the sale on its EC Sales List.

Previously, it had been possible to zero-rate the supply of goods in such a situation if the supplier held proof that the customer was in business. Now it will be necessary to obtain the VAT registration number of the customer.

If a supplier fails to meet these conditions, it will not be able to zero-rate that supply of goods and will have to account for VAT on the supply.

4. EU Chain transactions

Chain transactions involving an EU movement of goods have been a complex area of VAT for some time and the new rules look to provide some clarity on which transaction is able to benefit from the zero-rating.

A chain transaction is one that involves a number of successive supplies of goods but with only one intra-EU movement of the goods concerned.

Under the new rules, if a supplier transports the goods directly to the final customer in the chain, who is based in another EU Member State, the zero-rating will be treated as applying the first supply in the chain.

However, if an intermediary customer in the chain is VAT-registered in the same EU Member State as the supplier and arranges the transport of the goods, the zero-rating will in that case apply to the supply by the intermediary to the final customer.

Please note these changes will apply throughout the Brexit transition period but will be subject to some adjustment once the transition period has ended.

EU suspensions on certain agri and industrial products

The EU has amended Regulation No1387/2013 which suspends the customs duties on certain agricultural and industrial products which are not available in the EU. The purpose of this regulation is to ensure there is a sufficient and uninterrupted supply.

Each suspension measure eliminates the customs duty on specific commodity codes, where it has been demonstrated that imports of those particular goods do not harm the interests of EU producers.

EU importers can apply for a tariff suspension for goods which cannot otherwise be obtained from EU producers, either in the volumes required or to the required technical specifications.

Where a suspension harms an existing EU producer, they can apply for termination of the suspension if they can demonstrate they are able to produce goods of equivalent technical characteristics and quality in the volumes required by EU importers. Suspensions usually apply only to goods for further processing, not to finished goods. If you would like to know whether your goods are affected, please get in touch.

Movement on US-China trade dispute

US President Donald Trump has said he will sign a ‘phase one’ trade deal on January 15^th and that he will also travel to Beijing at a later date to begin talks on phase two. It is not clear in detail what the trade deal consists of but it is anticipated tariffs of £121bn on Chinese imports of items such as smartphones and toys will be suspended in return for China agreeing to buy more US agricultural goods and improve intellectual property protections.

Meanwhile, China has reduced import tariffs on 859 commodities. The commodities affected are consumer goods, raw materials for pharmaceutical goods and raw materials for manufacturing high tech goods. Though the tariff cuts do not directly relate to its trade war with the US, they do support China’s claim that it is opening up its economy.

Iran-US conflict could see increase in landed costs of goods

The conflict between Iran and US as a result of the airstrike that killed General Qasem Souleimani has already led to the increase in the price of oil and gold. An increase in the oil prices, which is in effect a consumption tax, could lead to increases in freight prices. Furthermore, Iran has threatened to close one of the world’s most important shipping route, the Strait of Hormuz, which could further disrupt trade. Such moves could increase the landed costs of your goods whether you import or export.

Brexit and the need for Fiscal Representatives

If you import and sell goods in the EU, you will already have arranged the relevant VAT registrations for the countries in which you are selling goods.

Brexit will add an additional complication for UK established entities, as once it has happened, there may be a requirement to appoint a Fiscal Representative as a condition of being (or remaining) VAT-registered in an EU country. Fiscal representatives are not required for businesses that are established in the EU, which is why you will not have been required to appoint one prior to Brexit.

The issues is that Fiscal Representatives are jointly and severally liable to the tax authorities for the payment of the VAT due and so are likely to charge high fees for their services and/or require a bank guarantee to be in place.

If you would wish to have a discussion about which countries require a Fiscal Representative or need assistance in locating a suitable representative, please contact Michael Ashdown (michaelashdown@harwoodhutton.co.uk)

End of the line for the paper tariff

With HMRC moving toward being a digital organisation, it has stopped printing the paper tariff from December 2019. The advantage of this is the online tariff, which is updated daily, is always up to date – unlike the paper tariff which was in arrears. If you would like information on how to use the online Trade Tariff tool, please get in touch.