Between 2022 and 2024, the EU will introduce a holistic VAT reform. In order to provide more clarity on chain transactions, intra-Community transfers and consignment warehouses In order to ensure the effectiveness of the system, there will be the so-called "quick fixes" as emergency measures.
What are these quick fixes?
The current VAT regulations of the European Union are indeed only a temporary solution of the EU - although they have been in place for decades. With an action plan of the Union, the so-called Quick Fixes, it now wants to meet the new requirements of international networking and digitalization - and incidentally create a simpler principle for VAT in Europe, which should limit abuse. In this article, we would like to show you what this means, which steps are necessary and how you can ultimately benefit from it.
Before the quick fixes for 2020, there was already a change in the law for online platforms and european traders on 1 January 2019: Since then, it is no longer the trader himself who is liable for unpaid VAT, but the online platform. As a result, Amazon, eBay & Co. will in future require a certificate in accordance with § 22f, which proves to them that the trader has paid VAT correctly.
Among other things, the forthcoming reform affects the country of destination principle. This is to be amended to the extent that tax exemption no longer arises in the country of origin of an intra-EU (or intra-Community) supply. Instead, VAT will arise in the country of the company receiving the supply. With regard to third countries, however, the current regulations will remain in place.
Quick fixes as an immediate measure against misuse
The Quick Fixes are only a first step towards new, definitive rules on VAT in Europe. They will come into force on 1 January 2020 in the form of emergency measures. In the years 2022 to 2024, all measures should finally take effect and the uniform laws become legally binding.
The main purpose of the emergency measures is to prevent fraud and abuse. In particular, intra-Community trade in goods should benefit from the changes by simplifying it and making abuse more difficult.
From 2020 onwards, there will be many innovations with regard to the European VAT system, which will affect, for example, chain transactions, intra-Community supplies and consignment stocks. I will explain what is meant by this in a moment.
What quick fixes will be coming soon?
In the following, we summarize the changes of the reform for you. With this, we would like to give you an overview of what you will have to observe in your company from 1 January 2020 - so that you can
- You'll save on your taxes,
- work legally compliant and
- you can save yourself the trouble of studying the new case law yourself.
EU-wide guidelines for chain transactions
Definition: Series transaction
In a series transaction, not only two companies are involved in a delivery. In addition, an intermediary helps in the transportation of the goods. One speaks of a series transaction when the same item is delivered one after the other and transported directly from the first supplier to the last purchaser.
For the first time, the Quick Fixes will introduce an EU-wide directive with regard to the taxation of the middle entrepreneur. Until now, taxes have varied from one EU member state to another - despite the same situation.
The situation is different if the transport of the intermediary takes place for the account of the first or the last trader: In this case, the shipment of the goods is attributed to the first or last trader.
What does that mean for you and your online store?
Online retailers should review their internal procedures and processes with regard to the upcoming changes. Do internal adjustments have to be made? Do international sales have to be recalculated because of the reform?
Overall, the quick fixes are intended to make VAT processing cheaper and easier for online retailers. And those who inform themselves in good time can definitely benefit from this.
How intra-Community supplies are exempt from tax
Definition: intra-Community supply
An intra-Community supply is a cross-border supply of goods and products within the EU. This is exempt from turnover tax.
In future, stricter conditions will apply to the exemption from tax of intra-Community supplies. The material conditions for the tax exemption of these supplies will be supplemented as follows:
- The VAT ID of the purchaser is available.
- The acquirer is registered for VAT purposes in an EU Member State other than the country where the dispatch originates.
- The VAT ID is recorded in the VIES system (also known as the VIES system).
- The delivery is correctly summarized.
If the purchaser does not have a valid VAT ID, the intra-Community supply is immediately taxable. Currently, only fines are due if the regulation is not observed. This has not yet resulted in a tax liability.
What does that mean in concrete terms?
For you as the operator of a B2B online shop, this means that you must now play it safe when requesting the VAT ID. If mistakes are made here, you are threatened with a tax liability - and thus a real loss of money. In order to ensure that all information in the summary of intra-Community deliveries is correct, new internal structures and processes may be necessary - for example, in order to be able to make a secure and regular query of the VAT ID of the purchaser with the help of WooCommerce and German Market.
Evidence from interested parties
In addition, according to the Quick Fixes, both parties to an intra-Community supply must provide evidence. It goes without saying that these must not contradict each other. This evidence can be of various kinds: CMR waybills, invoices from the freight forwarder, bills of lading or air freight invoices.
Substitute documents for supporting documents
However, if only one proof is available, the following documents can serve as a substitute for the second proof:
- Bank records showing that shipping has been paid for or an insurance policy for shipping.
- Official documents, e.g. from a notary, confirming that the goods have arrived in the Member State of destination.
- A receipt signed by a warehousekeeper in the Member State of destination confirming the storage of the goods.
Advantages and disadvantages of the innovation
The new regulation has the following advantages and disadvantages for European companies:
A negative aspect is the increased administrative burden, as two documents or proofs will be required in the future.
On the positive side, the unification of regulations means that it is no longer necessary to study the laws of the individual EU member states. Instead, there is a simpler, unified solution. Tax fraud can also be counteracted and a fair market promoted.
Unified regulations for consignment stocks
If we look at the cross-border equipment of consignment warehouses, we come across different regulations and obligations to provide evidence throughout Europe.
Definition: Consignment warehouse
Consignment warehouses are warehouses located in the vicinity of (i.e. at least in the same state as) the buyer. Here, the goods remain in the seller's inventory until the buyer removes them.
With the introduction of the quick fixes for VAT in 2020, a new Europe-wide directive will come into force that will rule out distortions of competition in the future and provide a clear, simpler picture of the regulations. No matter in which member state of the European Union an entrepreneur is located.
For example, there were previously unresolved questions about the determination of the taxable amount in the case of an intra-Community purchase and subsequent supply.
What will change?
Thanks to the new legislation, the supplier in the country of destination will be relieved of some registration and declaration obligations. Intra-Community supplies can be accepted in the future under the following circumstances:
- The goods are delivered to a consignment warehouse in another Member State and from there to another trader.
- The supplier is neither established in a Member State of destination nor in the process of setting up an establishment there to which the products are transported.
- The supplier already knows the identity and the VAT identification number of the customer.
- The supplier and the buyer shall each have a single register.
- The goods must be delivered to the buyer within one year of being placed in the consignment warehouse.
In this case, the intra-Community supply and the acquisition only take place when the goods are removed from the consignment warehouse. This makes it possible to avoid VAT registration of the first trader in the country of destination.
Assume that the goods are returned to the country of storage within a period of twelve months and the transaction is recorded accordingly: In that case, there is no movement, although the requirements for it are met. As a result, the deferral period between putting the goods into and taking them out of storage is uniformly set at twelve months.
In addition, it is now possible to replace the buyer with another buyer - provided that this change is entered in the register and the other conditions are also met.
Ultimately, it is therefore advantageous for the parties involved to be able to act more flexibly and with legal certainty when assessing the consignment warehouse for VAT purposes.
Advantages and disadvantages of tax reform?
- Stricter penalties for tax fraud
- Fair competition
- Higher delivery thresholds
- Clear definition of consignment stocks and series transactions
- Administrative effort
- More control and evidence
Conclusion: Quick fixes not yet the end
In summary, this means that the quick fixes with regard to VAT now provide clarity throughout the European Union: no more lengthy research when dealing with a new EU member state, no more costly legal advice and a significantly reduced risk in the transaction.
After all, the applicable laws are known from Germany and are applicable throughout Europe.
However, it is also clear that the quick fixes are only a first step in the VAT reform and not yet the end. The European Union is aiming for a completely uniform reform for the years 2022 to 2024. Until then, the quick fixes show the direction in which things are heading - regardless of the member state.
Unfortunately, the topic of quick fixes is quite complicated, especially in the beginning, and requires some knowledge of taxes. If you have any further questions or something is still unclear, feel free to leave me a comment!
Images: Hello I'm Nik | Unsplash, hellotax