VAT exemption in intra-community trade in the European Union: new regulations
The European Union exempts its member states from paying VAT for intra-community trade. A transitional VAT regime was adopted in 1992 (Council Directive 2006/112/EC) pending its replacement by a definitive regime in 2022 which will confirm the taxation of goods in the Member State of destination.
Today, this VAT is self-liquidated by the recipient but is expected to be collected by the seller. As the implementation of such a mechanism takes time, for the time being the current EU VAT rules applicable to intra-EU transactions are being improved through specific measures aimed at harmonizing and simplifying certain schemes for businesses but also at combating fraud. Thus, two regulatory texts have been published and have been in force since January 1, 2020:
- Harmonization and simplification of certain rules in the value added tax system for the taxation of trade between Member States: OJEU L311 of 07/12/2018 publishing Council Directive (EU) 2018/1910 of 4 December 2018 amending Directive 2006/112/EC
Exemptions related to intra-Community transactions: OJEU L311 of 07/12/2018 publishing Council Implementing Regulation (EU) 2018/1912 of 4 December 2018 amending Implementing Regulation (EU) No 282/2011.
The new conditions for benefiting from the VAT exemption on intra-Community supplies of goods concern in particular the proof of transport for the purposes of the exemption of intra-EU transactions, chain transactions, the system of stocks under contract of deposit or the role of the VAT identification number in the context of the exemption of intra-Community supplies of goods.
In this article, we will deal in particular with the subject of the VAT identification number. The insertion in the VIES database of the VAT identification number of the purchaser of the goods assigned by a Member State other than that of the departure of the transport of the goods for the granting of the exemption will now be a condition of substance rather than of form.
This means that since January 1, 2020, two additional conditions are required:
The buyer’s VAT identification number must be verified in the VIES database (VAT Information Exchange System)
Proof of the validity of the VAT number must be kept in order to provide an element of justification for a VAT exemption in the event of a tax audit.
To illustrate, use the example of a French supplier (A) who wants to benefit from the VAT exemption for a shipment of his goods to Sweden (B).
- B must provide A with a valid VAT number for member states of the European Union other than France
- Both parties will have to submit a so-called Intrastat declaration in order to be listed in VIES
- A must keep proof of validity of the VAT number
Please note, if all these conditions are not valid, you will not be able to apply a VAT exemption.
How b.workshop can help you in this process:
b.workshop is the French leader on the implementation of Oracle JD Edwards ERP. In this article, we talk about this ERP because it offers the possibility to check the EU identification number with the VIES registry thanks to the installation of a web service allowing to connect to a URL of the VIES registry to check a submitted number.
Previously not used because it was not binding in regard to regulations, this software package tool is now a quick and efficient way to comply with recent regulatory changes. The control can be carried out in real time when entering the P01012 or can be done by a batch process that runs through the database and checks afterwards.
The implementation of this technical functionality is estimated to take approximately 5 days:
- 4 days of technical consultant (CNC)
- 1 day as a functional consultant (senior)