2020 EU VAT reform: 4 quick fixes
Deloitte Malta Tax Alert
09 July 2019
As of 1 January 2020, the VAT rules for EU cross-border supplies of goods will change in all EU countries. This 2020 EU VAT reform is also referred to as “the 4 quick fixes” and is a first step towards the definitive EU VAT regime.
In short, the 4 quick fixes have the following effects:
- Harmonisation of the EU cross-border call-off stock rules;
- Harmonisation of the EU cross-border chain transactions rules;
- Harmonisation of the rules for documenting EU cross-border movements of goods; and
- Mandatory VAT ID number verification for EU cross-border supplies.
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What is the possible impact on your business?
The 4 quick fixes aim at simplification and harmonisation on an EU level of the VAT rules for EU cross-border supplies of goods. This can reduce the administrative burden for businesses trading goods across the EU, as this may mitigate the differences in rules among the respective EU countries. However, these changes may also mean less flexibility and may require changes to the current configuration of supply chains, IT systems, processes and tasks to be performed by the people within your organisation.
The exact impact for your business depends on the specifics of your business and the strategic choices you make. In any case, the EU VAT reform asks for a holistic approach involving various stakeholders such as Sales, Procurement, IT, Tax, and Legal.
You should consider the possible impact on your business in order to mitigate VAT risks in terms of additional VAT liabilities, registration and reporting obligations. On the other hand, the 4 quick fixes could be an opportunity for standardisation and enhancement of internal controls within your organisation across the EU.
What are the actions to be taken?
To be ready for the changes per 1 January 2020 we suggest swift action.
Our suggested approach is as follows:
- Determine which quick fixes, if any, will impact the current supply chains (‘must dos’);
- Determine which benefits can be derived from the quick fixes (‘nice-to-haves’);
- Determine the actions and priorities for relevant stakeholders including Sales, Procurement, IT, Tax, Legal, etc.; and
- Initiate the process of change.
Deloitte offers support for all phases as outlined above. We would be pleased to have a conversation with you to identify whether you should make a deep dive into the new VAT rules and for which areas.
Explanation of the 4 quick fixes
1. EU cross-border call-off stock supplies
In short, call-off stock supplies refer to situations where a business moves stock to a warehouse in another EU country and at the time of the shipment knows the identity of the customer to whom the goods will be supplied in that country, although the actual supply to that customer takes place only when taking the goods out of the storage.
Under the current rules, this can trigger VAT registration and reporting obligations for the supplier in the EU country of stock keeping (depending on the specific national VAT rules applicable in that particular EU country).
Under the new harmonised rules, a VAT registration in the stock keeping country might be prevented. However, additional administrative requirements would apply to you and your customers. Under the new rules, applying the call-off stock regime is mandatory if the requirements are met.
You should assess if you meet the call-off stock requirements. If so, then you should consider the new administrative requirements for yourself and your customers and define appropriate actions or make changes to the supply chain to prevent the application of the mandatory call-off stock regime.
2. EU cross-border chain transactions
In short, EU cross-border chain transactions concern supply chains involving 3 parties (or more) and which entail the shipment of goods from one EU country to another. For example, supplies by an EU head office to its EU sales subsidiary followed by an onward supply to a customer in the course of which the goods are shipped directly from the (central) warehouse to the place of arrival of the customer in another EU country. Chain transactions can also exist if the goods are purchased from third parties and subsequently supplied onwards.
Currently, the VAT rules describe criteria to determine in which leg of the chain the cross-border transaction takes place. This defines the VAT registration and reporting obligations for the parties involved.
The new VAT rules introduce new harmonised criteria for determining in which leg the cross-border supply takes place. This can change the VAT registration and reporting obligations for yourself and your customers.
You should assess whether the new rules change your VAT obligations or make changes to the supply chain to avoid unnecessary VAT obligations for yourself and possibly your customers. The new rules also provide possibilities for more VAT efficient supply chains.
3. Harmonised documentation requirements
More detailed rules and conditions have been published on documented evidence that qualifies as ‘sufficient’ to support the application of the 0% VAT rate (or VAT exemption) to the EU cross-border supply of goods.
In short, in the new EU VAT legislation examples and rules are given on the documentation to be collected and stored. This change requires you to assess whether your current collection and retention process is sufficient under the new rules. If not, you will have to enhance the procedures. As these rules apply to all EU countries the new rules are an opportunity to standardise your processes across the EU.
4. Mandatory VAT ID number verification for EU cross-border supplies
Under the current VAT rules, in the case of EU cross-border supplies the VAT ID numbers of customers need to be reported to the tax authorities. Currently, mistakes in these listings or even an invalid VAT ID number, besides penalties, do not necessarily result in a rejection of the 0% VAT rate (or VAT exemption) as the law requires mainly that businesses prove the cross-border nature of the supply.
Based on the new rules, the importance of the VAT ID numbers of customers increases. Effectively, reporting an incorrect VAT ID number of your customer in the EU Sales Listing prevents you from applying the 0% VAT rate (or VAT exemption). Based on these changes, we anticipate that the tax authorities, compared to current practice, will impose VAT assessments (and penalties) more often.
The above requires you to take risk mitigation measures. We recommend you to reconsider the processes and enhance the controls around maintaining customer data. In many cases, automation of processes is a suitable solution. We can support you on this.