A previous update released in 2017 detailed the European Commission's plans to introduce new rules for cross-border deliveries with effect from 1 January 2022.
The aim of the European Commission is to switch to a system in which a supplier providing goods to a customer/entrepreneur in another EU Member State would charge VAT at the rate applicable in the Member State of destination of the goods. VAT must then be declared and paid in the Member State where the supplier is established, using a one-stop-shop mechanism.
A number of short-term reforms
The 2017 update also reported on a number of short-term reforms (referred to as quick fixes) which are intended to be introduced before 2022. On 2 October 2018 the EU Finance Ministers, meeting within the ECOFIN council, reached agreement on a number of these measures, which are aimed at simplification. The measures, which will take effect on 1 January 2020, entail the following:
- Simplified rules for "call-off stock". This is stock held by companies in a Member State other than the Member State of establishment, so that it can be quickly sold to local customers on a call-off basis. Some countries have a simplification arrangement for this, which avoids compulsory VAT registration in the country where the stock is held. The Member States have now agreed that this arrangement will apply to all countries from 2020 onwards. The arrangement entails that the seller records an intra-Community supply at the time the items are retrieved from the stock by the buyer.
- In order for intra-Community supplies of goods to be zero-rated for VAT, it will be compulsory to have the customer’s VAT identification number. From 2020 onwards, suppliers who do not have a customer's VAT identification number will no longer be permitted to zero-rate their supplies.
- Entrepreneurs will be able to prove more easily that goods have been transported from one Member State to another, which is a condition for exemption from VAT.
- There will be simplification of determining which transaction in a chain transaction or triangular transaction is defined as the cross-border supply.
Agreement on proposal to implement the GRCM
A further development that is relevant for businesses operating internationally is that EU Member States have reached agreement on the European Commission's proposal in relation to the introduction of a fixed-term generalised reverse charge mechanism (GRCM). EU Member States faced with an above-average level of VAT fraud in their country are able to introduce a generalised reverse charge mechanism for domestic goods and services transactions exceeding a transaction threshold of €17,500 per transaction. Implementation of a reverse charge mechanism requires an application to and approval from the European Commission.
Which Member States are eligible to implement a generalised reverse charge mechanism? Member States currently eligible to implement a generalised reverse charge mechanism are Bulgaria, Greece, Hungary, Italy, Latvia, Lithuania, Malta, Poland, Romania, Slovakia and the Czech Republic. An effective date for this option has yet to be set.