As part of the VAT action plan as launched on 7 April 2016, the EU Commission announced a legislative Proposal for the Definitive VAT system for Cross Border EU Trade. Said proposal was published today (hereafter referred to as the Proposal) and introduces the cornerstones of the Definitive VAT system for Cross Border B2B EU trade. A forthcoming proposal in 2018 will further provide detailed technical provisions in this respect (two step approach).
Whereas the current VAT system is characterised by splitting each EU B2B cross border supply of goods in an exempt intra-Community supply in the Member State of departure and a taxable intra-Community acquisition in the Member State of arrival of the goods, the Proposal foresees in the introduction of one taxable supply in the Member State of destination of the goods, the so-called intra-Union supply. As a first step of the Definitive VAT System the Proposal introduces the concept of a Certified Taxable Person or CTP. Said concept allows for an attestation that a business can globally be considered as a reliable taxpayer. Only when the intra-Union supply is performed for a CTP the supplier can apply the reverse charge mechanism.
In order to meet the request of the Council as stated in the Council Conclusions of November 2016, the Proposal also foresees further amendments of the VAT Directive (so-called quick wins) in respect of the VAT identification number, chain transactions and call off stocks. The Council also requested the Commission to draft a common framework as regards the documentary evidence required to claim an exemption for intra-Community supplies, the latter is included in the proposal amending the VAT Implementing Regulation.
In respect of Call off Stocks the proposed solution consists in considering the call off stock as giving rise to one single supply in the Member State of departure and an intra-Community acquisition in the Member State of arrival if performed between two CTP’s, whereas he application of the VAT exemption for intra-Community supplies is made conditional upon the valid EU VAT registration of the acquirer. Last but not least the Proposal foresees that in respect of chain transactions the transport is to assigned to the supply made for an intermediate supplier if (i) he is VAT registered in another Member State then the Member State of supply (ii) he communicates the Member State of arrival to its supplier (iii) both the intermediate supplier and his supplier are CTP’s.
The Proposal requires the Member States to apply the provisions as of 1 January 2019. Although this lays more than 1 year ahead of us it is clear that the CTP status will become a crucial and even almost required status. We will organise a Webex to further elaborate on the impact of the Proposal in the coming weeks.
This text is co-authored by Claire De Lepeleire (ITX Director at PwC) and Ine Lejeune (Partner Tax Policy, Dispute Resolution and Litigation at Law Square).