Wider application of simplified procedure for triangulation after ECJ judgment

Application of the simplified triangulation is also possible for an intermediary contractor established or registered in the EU country of dispatch of the goods. An administrative omission in EU country B does not preclude application of the simplified procedure for triangulation, it may, however, lead to a fine being imposed.

The Court of Justice of the European Union (hereafter: ‘ECJ’) broadens the scope of application of the simplified VAT procedure for triangulation and interprets the procedure in such way that it is also applicable in case the intermediary contractor (party B) is established (or registered) in EU country A, but uses his VAT id number of EU country B. In this case (Firma Hans Bühler KG, C-580/16) the ECJ considers that the context and the objective of the simplified procedure for triangulation should prevail over the literal wording of the VAT Directive.

What does this judgment possibly mean for your business?

As a result of the Bühler case, the simplified procedure for triangulation can be applied to a wider variety of chain transactions, resulting in less VAT identification and declaration obligations for the intermediary contractor (party B) in the country of destination of the goods. In addition, application of the simplified procedure for triangulation may result in cash flow advantages for the parties involved, since both the first contractor (party A) and the intermediary contractor (party B) do not have to charge VAT on their supplies made.

The possibility to effectively reduce administrative burdens shows, for example, when party B is currently (precautionary) registered for VAT purposes in one or more EU countries (i.e. EU country C), merely for the reason that party B is also identified for VAT purposes in the EU country of dispatch of the goods. Based on the ECJ case, party B could probably cancel its VAT registration(s) in EU country C, unless, of course, VAT registration in EU country C would still be required based on other reasons. In situations as these, we advise you to consult with your VAT advisor to discuss the possibilities and consequences of cancelling your VAT registration in EU country C.

In circumstances where party B is established or registered for VAT purposes in EU country A (being the country from where the goods are dispatched to EU country C), and party A (precautionary) charges local VAT to party B for that reason, parties could reconsider whether this is still necessary based on the Bühler case. Of course, this requires that the first supply in the supply chain can be considered an intra-EU supply, which means that either party A or party B has to take care of transport of the goods. In addition, the right to dispose of the goods as an owner should not have been transferred to party C before the goods are dispatched to EU country C. We can imagine that there might some possibilities to facilitate this, especially for supply chains involving group companies. Your VAT advisor is happy to inform you further about the possibilities in this respect.

Background

Firma Hans Bühler, established and registered for VAT purposes in Germany, was also registered for VAT purposes in Austria from October 2012 to March 2013, where it planned to set up a permanent establishment. During that period, Bühler used its Austrian VAT id number exclusively for so-called triangulation supplies.

Bühler bought products from suppliers established in Germany and sold them to a customer established and registered for VAT purposes in the Czech Republic. The products were dispatched directly from the German suppliers to the Czech final customer. On the invoices sent to the Czech customer, Bühler mentioned its own Austrian VAT id number and the Czech VAT id number of the Czech customer, also stating that the transactions were ‘intra-Community triangular transactions’ and that the customer was therefore liable to pay the VAT. As a result, no VAT was due in Austria and Bühler only had to report the sales transactions in the recapitulative statements (‘EU Sales Listings’) to be filed in Austria. By making use of the simplified procedure for triangulation, Bühler did also not have any VAT obligations in Germany (EU country A) and/or the Czech Republic (EU country C).

On the EU Sales Listing, Bühler omitted ticking the box ‘triangular transactions’. Despite the fact that the omission was corrected after two months, the Austrian tax authorities concluded that the transactions were ‘abortive triangular transactions’ because Bühler had not fulfilled its obligations concerning the duty to declare and had not proven that the transaction had been subject to VAT upon final acquisition of the goods in the Czech Republic. Furthermore, the Austrian tax authorities in fact took the approach that since Bühler is established/registered for VAT purposes in the same country as its supplier (party A, Germany), the simplified procedure for triangulation could not have been applied anyhow.

Based on the above, the Austrian tax authorities issued an additional VAT assessment to Bühler claiming that Bühler should (also) have reported an intra-EU acquisition of the goods in Austria, since it used its Austrian VAT id number when purchasing the goods from party A.

Decision ECJ

According to the ECJ, application of the simplified procedure for triangulation must not solely be based on the wording of the VAT Directive, but also its context and the objective of the provision should be taken into account. An intermediary contractor is allowed to be registered for VAT purposes in several EU countries, whilst still being able to apply the simplified procedure for triangulation. Of course, the provision cannot be applied in case the intermediary contractor is already identified for VAT purposes in EU country C, since the objective of the provision is to prevent such registration in the country of the final destination of the goods (i.e. EU country C). According to the ECJ, to determine whether the simplified procedure for triangulation can be applied, solely the VAT id number used in respect of the acquisition by the intermediary contractor (in EU country B) must be taken into account.

A taxable person, who performs an acquisition, while also meeting the conditions of the simplified procedure for triangulation, cannot be refused application of the simplified procedure on the sole ground that he is also identified for VAT purposes in the EU country in which intra-EU dispatch of the goods began.

In respect of not listing the transactions in a proper and timely way, the ECJ declares that this is merely an administrative omission, but that in this case, the failure to comply with a formal requirement does not lead to preclusion of the simplified procedure for triangulation, provided that the material requirements have been met.