On 4 December 2018, the Council of the European Union adopted three short legislative acts related to the new European VAT system. The so-called quick fixes should help solve problems arising in trade between EU member states by fixing four specific issues and are due to apply from 1 January 2020. Estonia will also have to transpose the new rules into the Law on Value Added Tax by this date. In this article, we present the main aspects of the quick fixes to the VAT system.
The quick fixes adjust the application of zero rate VAT for intra-EU supply of goods
As a result of the quick fixes, to benefit from a VAT exemption for the intra-EU supply of goods, the VAT identification number of the buyer will become an additional condition. In order to apply zero rate VAT, all EU countries will have the same requirement for the supplier to obtain the buyer’s VAT identification number and to specify it in the intra-EU sales report. Failure to comply with this requirement means that zero rate VAT cannot be applied, regardless of whether the other conditions for zero rating are present.
Nevertheless, companies will be left with the opportunity to prove that they were acting in good faith and to justify the application of zero rating even without having the buyer’s VAT identification number. It is not clear yet what kind of evidence will be required by the tax administrator in these cases.
The quick fixes establish a common framework for the documentary evidence
The fact of goods being transported to another EU member state will be presumed (i.e. no additional proof will be necessary) if the supplier has two pieces of evidence from the list provided:
- The first piece of evidence relates to transport of goods. This could be a consignment note or an invoice issued by the carrier for transportation services.
- The second piece of evidence offers several alternatives. This could either be another document related to transportation of goods to another EU member state (issued by a person other than the one who issued the first piece of evidence), or one of the following documents: an insurance policy related to transportation of goods, proof of payment for the shipment, a receipt from the warehouse to which the goods were delivered, or confirmation of delivery to the country of destination issued by an official (e.g. a bailiff).
It is important to note that the second piece of evidence must come from a person other than the one who issued the first piece of evidence. In addition, the person who issued it will have to be independent of both the supplier and the buyer.
If the shipment is organised by the buyer, it will be mandatory to have a fixed content buyer’s confirmation in addition to the above evidence. If companies do not have the documents listed, they will not be able to benefit from the new rules and the fact of the goods being transported will have to be proven in the same way as it is now.
It is important for businesses to assess what other entities’ documents they can obtain and to change their internal procedures accordingly. Otherwise, it will not be possible to benefit from the new rules to facilitate the complex process of proof.