Changes to the VAT Act: "Quick Fixes" Update
Deloitte Malta Tax Alert
22 October 2019
Following on from our July update regarding the 2020 EU VAT reform, also referred to as “the Quick Fixes”, regulations implementing the provisions of Council Directive (EU) 2018/1910 into the Maltese Value Added Tax Act were published during October 2019 by way of Legal Notices. The so-called “Quick Fixes” shall enter into force on 1 January 2020. This alert summarises the measures that have been adopted.
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L.N. 250 of 2019 - Value Added Tax Act (Amendment of Third Schedule) Regulations, 2019 - Quick Fix 1: Chain transactions
EU cross-border chain transactions relate to supply chains involving three parties (or more) and which entail the dispatch or transport of goods from one EU country to another. Chain transactions occur when the goods are transferred between several parties in the course of the supply chain; however, the goods are dispatched or transported directly from a central warehouse to the final destination, typically being the end customer in another EU country.
L.N. 250 of 2019 extends item 1 of Part One of the Third Schedule to the VAT Act so that where the same goods are supplied successively and are dispatched or transported from one Member State to another Member State directly from the first supplier to the last customer in the chain, the transportation shall be attributed solely to the supply made to the intermediary operator (i.e. a supplier within the chain, apart from the first supplier, who dispatches or transports the goods either himself or through a third party acting on his behalf). However, if the intermediary operator has communicated to the supplier its VAT identification number issued by the Member State of dispatch or transport, the transportation shall be attributed solely to the supply of goods made by that intermediary operator.
This amendment provides clarity as to which transaction qualifies as a VAT exempt intra-EU supply.
L.N. 251 of 2019 - Value Added Tax Act (Amendment of Second Schedule) Regulations, 2019 - Quick Fix 2: Call-off stock
Call-off stock supplies refer to situations where a business moves stock to a warehouse in another EU country and although the identity of its final customer is known at the time of dispatch or transport, the actual supply to that customer takes place only when the goods are taken out of storage by the customer. The amendments provide for the harmonisation of rules across the EU with regard to call-off stock supplies.
This Legal Notice introduces a new item 17A into the Second Schedule to the VAT Act providing for simplification procedures for call-off stock arrangements. The provision sets out the criteria that have to be met in order for a call-off arrangement to be presumed to exist.
Under current EU VAT rules, a taxable person who transfers goods relating to its business from one Member State to another shall be deemed to have made an intra-EU supply and intra-EU acquisition of those goods to itself, which would typically trigger VAT registration and reporting obligation in the other Member State. However, under the new simplification procedure, upon the transfer of the right to dispose of the goods as owner (which happens while the goods are physically located in the Member State of destination of the goods), the supplier is treated as making an exempt (with credit) intra-EU supply of the goods, while it is the customer who reports the corresponding intra-EU acquisition.
L.N. 249 of 2019 amending the Value Added Tax (Recapitulative Statement of Intra-community transactions) Regulations
This amendment introduces the requirement to report transfers of goods under the call-off stock simplification procedure in the VAT recapitulative statement.
L.N. 252 of 2019 amending the Eleventh Schedule to the VAT Act
This is an additional amendment relating to the simplification procedure for call-off stock arrangements, introducing the requirement to maintain a call-off stock register as part of the taxpayer’s VAT record-keeping obligations.
L.N. 253 of 2019 amending the Fifth Schedule to the VAT Act
This amends item 3(1) of Part One of the Fifth Schedule whereby essentially, a supplier who fails to comply with its VAT recapitulative statement obligations (whether by way of omission or erroneous submission) will crucially lose its eligibility to avail of the VAT exemption (with credit) provided for intra-EU supplies, unless this shortcoming can be justified to the satisfaction of the Commissioner. This amendment at EU level effectively appears to constitute a statutory override of the principle that has been established by the Court of Justice of the EU that shortcomings in VAT formalities should not automatically result in the denial of the normal VAT treatment.
For more information and to understand how these amendments may affect your business, please contact the below.