Quick fix: call-off stock
On 4 October 2017, the European Commission published some details of its plan for reform of the EU VAT system in respect of cross border trade.
2 November 2017
- What is call-off stock?
- Why is there a need for simplification?
- Proposed simplification
- Progress or setback?
- Link with CTP status
In anticipation of the new VAT system that should, according to the proposals enter into force in 2022, the Commission proposes four quick fixes to provide some simplifications in the current system. This article deals with one of those quick fixes: the simplification for call-off stock.
What is call-off stock?
Call-off stock is a type of consignment stock where a supplier places goods, such as raw materials, manufacturing components or spare parts, at the premises of a known customer, the premises of a third party or its own premises near the location of the customer, allowing the known customer to withdraw goods from the stock at the moment he needs them. The ownership of the goods is transferred at the moment the goods are withdrawn from the stock.
Why is there a need for simplification?
Under the current system for intra EU trade that was implemented in 1993 the Member States agreed that they needed tax authorities to be able to follow the flow of the goods. In other words, when a supplier transferred his own goods from one Member State to another Member State he needed to report a deemed intracommunity supply in the Member State of departure and a deemed intracommunity acquisition in the Member State of destination. In that way the tax authorities of the Member State of departure know that the goods have left their territory and the tax authorities of the Member State of destination know that the goods have entered their territory.
In case of call-off stock the ownership of the goods is transferred at the moment the goods are withdrawn from the stock. So, at the moment the goods are transferred to the place where the stock is located the supplier is the owner of the goods. This means that if the stock is located in another EU Member State the supplier must report a deemed intracommunity supply and a deemed intracommunity acquisition. When he is not VAT registered in the Member State of arrival of the goods he will need to VAT register and file VAT returns in that Member State because of this transfer of the goods. At the moment the goods are withdrawn from the stock the supplier must report a local supply to its customer. The VAT on this local supply might be reverse charged to the call off customer, depending on the national VAT legislation.
Some Member States have simplifications in place for call-off stock and consignment stock. Not all Member States have those simplifications and the simplifications vary between Member States. This leads to uncertainty and extra administrative and compliance costs for businesses.
In order to deal with this issue the European Commission has now proposed a simplification. Under this simplification the supplier no longer has to report a deemed intracommunity supply and a deemed intracommunity acquisition at the moment he transfers the goods from one Member State to another. He will instead report an intracommunity supply to its customer at the moment the customer withdraws the goods from the stock. At the same moment the customer will report an intracommunity acquisition in the Member State where the stock is located.
The simplification only applies under the condition that both the supplier and the customer are CTPs and the customer is known at the moment the goods are transferred to the other Member State. In short this means that the taxable persons must be labelled by the tax authorities as being reliable taxable persons. I refer to my article about the CTP status for a more extensive description of the CTP. These CTPs need to fulfill a number of conditions. The supplier must keep a register of the transfers and he must report the transfer in its European Sales Listing (ESL) naming the customer and stating its VAT identification number. The simplification only applies if the supplier is not established in the Member State of arrival. The customer must be VAT registered in the Member State of arrival and the identity of the customer and his VAT identification number must be known at the moment the goods are transported to the other Member State.
Because the CTP status is not open to non EU entrepreneurs, the scope of the simplification will be limited to entrepreneurs established in the EU.
Progress or setback?
The simplification was proposed after research within the VAT expert group on call-off stock and consignment stock simplifications that Member States already had in place. The option that has currently been chosen is an implementation of the simplification in the same way as most Member States applying a simplified call off stock regime have. However, those simplifications are not linked with the concept of CTP, which is new in VAT. This means that from the perspective of the Member States already having a simplification in place, there is an additional condition to apply a simplified regime under the new Directive text, which in my view is not needed at all (see below).
For Member States that do not have a simplification in place suppliers will benefit, because the simplification will prevent a VAT registration in the Member State of arrival of the goods.
Finally, there are some, but not many, Member States that have a simplification for consignment stock in place, where the buyer is not known at the moment of the transfer of the goods.
Some Member States felt that their regime for consignment stock was supported by the VAT Directive, even though there are no specific regimes under the VAT Directive for call-off or consignment stock. Now that the Commission has proposed a special regime for call-off stock, it appears that those regimes may currently not be supported by the VAT Directive. This means that those Member States have to consider whether they will end their special rules for these consignment stock situations or whether they will apply for a derogation of the VAT Directive with the European Commission.
Link with CTP status
What strikes me most is that the simplification is linked to the CTP status as the reporting conditions that are linked to the simplified regime allow to trace the goods in the intra-Community VAT regime. When no simplification applies the tax authorities of the Member State of departure are informed of the transfer of the goods by the supplier in its VAT return and its ESL. The tax authorities of the Member State of arrival are informed by the supplier because he reports an intracommunity acquisition there. In case the supplier has a full right to deduct VAT no actual VAT accrues to the Member State of arrival, because the supplier will deduct this “acquisition VAT” in the same VAT return. Most suppliers and customers working with call-off stock are taxable persons with a full right to deduct VAT.
In case of the proposed simplification the Member State of departure is again informed of the transfer of the goods by the supplier, now only through its ESL. They can also consult the supplier’s register of these transactions in case of an audit. The Member State of arrival is no longer informed by the supplier of the transfer, because he will not report an intracommunity acquisition in that Member State. However the data in the ESL are shared between Member States and the Member State of arrival could thus become known with the transactions listed on VAT numbers of customers established in its Member State. Therefore the loss of information due to the proposed simplification is minimal. To lay down the extra condition that the taxable persons qualify as a CTP is in my opinion therefore a bridge too far.
In case there are multiple known buyers at the moment the goods are transferred to the other Member State the question is whether the simplifications can be applied. In particular the questions are:
- Can the simplification be applied if all buyers can withdraw from the same stock or only if a specific part of the stock is designated to a certain buyer?
- If the simplification can be applied if all known buyers can withdraw from the same stock, how does the supplier deal with the situation where one of the buyers is not a CTP?
Looking at the legislation proposed and the rule that the supplier must include the identity and the VAT identification number of its customer in the ESL, I believe that the simplification can be applied only if a specific part of the stock is designated for the customer and that customer has the CTP status. This clearly limits the scope of the simplification. In my view the simplification should be applicable to the situation of several known buyers too when there is no specific part of the stock designated to a certain buyer if all buyers are CTPs. In this situation too both Member State can be informed of the parties that can withdraw goods from the stock.