Manufacturing firms in Hungary normally have a lot of foreign suppliers, mainly from the EU. For taxation purposes it can be particularly important for them to know whether they can apply the call-off stock simplification rule. In this article I would like to respond to the key questions related to applying the call-off stock simplification rule.
What does call-off stock mean?
Call-off stock is given an exact definition by the VAT Act. Accordingly, “call-off stock means goods physically placed in a warehouse owned or rented by the future customer of the goods for stockholding purposes, which are available to the future customer as the owner during the storage period. In the course of this period neither party is entitled to utilise or make use of the goods in any other manner, except for testing or trial production purposes. Furthermore, the goods are physically removed from the storage when the supply of goods is initiated by the future customer.”
In the context of the Hungarian regulation, call-off stock is thus basically the stock of a seller from another Member State stored at the Hungarian customer (in the warehouse owned or rented by the customer), where the goods are used from the stock and supplied at the customer’s discretion, and the seller remains the owner of the goods stored at the customer until they are needed.
What is the essence of the call-off stock simplification rule?
The call-off stock simplification rule means that the seller from another EU Member State is not required to register as a Hungarian taxpayer because of the call-off stock stored in Hungary; consequently, it is not necessary to report the stock supply as the shipping of own goods and charge Hungarian VAT when selling the stock later on. Two transactions become one, namely, for the seller this means a tax-exempt sale within the EU, while for the customer it is an intra-EU purchase using the stock.
Under what conditions can the call-off stock simplification rule be applied?
Several conditions must be met simultaneously to apply this rule. What is important to note at the outset is that the call-off stock simplification rule may be applied if all the conditions are met, but it is not mandatory.
One of the most important rules is that it is only applicable for partners from EU Member States. So the simplification rule cannot be applied if a seller from a third country wants to store call-off stock in Hungary, the seller must register as a taxpayer in Hungary. I would also like to note that as the application of the simplification rule is not mandatory at EU level, there are some Member States – including Hungary – who apply the rule while others don’t.
Another important condition also included in the definition of call-off stock is that the stock is stored in a warehouse owned or rented by customer. So a warehouse rented by the seller is not enough to apply the call-off stock simplification rule. The definition of call-off stock also states that the call-off stock must be owned by the seller.
The application of the call-off stock simplification rule is also subject to the customer being a Hungarian-registered taxpayer with no special legal status, who is thus qualified to fulfil the tax payment obligation arising from the simplification rule. Last but not least, one further requirement is that the seller may not be registered in Hungary in relation to the sales of the call-off stock.
What does “relation” mean in the context of selling the call-off stock?
The last requirement probably needs to be clarified in more detail, as having heard about this rule most people ask what kind of “relation” is implied here, and whether it is possible to apply the call-off stock simplification rule if the seller was already registered in Hungary because of a previous transaction.
Basically, if the seller is already registered in Hungary we need to examine the extent to which the planned supply of goods from the call-off stock is related to the previous transaction for which the registration was made. If registration was required because of the supply of services and not goods, you can be sure that the above condition is met as the seller was not registered in relation to this transaction. However, the situation is not so simple if the registration was based on the supply of goods. Further examination is required in this case to decide how closely the previous supply of goods is related to the new sale from call-off stock. In our view – and as confirmed by the Hungarian Tax Authority in a tax question from 2017 – if the goods sold, the sales method and the customer are different, there is no close relation between the supplies of goods.
Please note that according to the tax authority’s position regarding the tax issue above, the call-off stock option can also be applied if the registered seller has already supplied goods using its Hungarian tax number in relation to the new call-off stock, because the registration was made for different goods.
The simplification rule in practice
Let’s take a simple example to understand the call-off stock simplification rule.
Company “A” is registered in another EU Member State, and was previously registered in Hungary as a taxpayer to provide property services in Hungary to private individuals. “A” is planning to sell spare car parts in the near future in Hungary to a Hungarian automotive company (hereinafter: “B”). “B” has an ongoing need for spare parts, so the parties are considering keeping stock in Hungary. “B” does not have enough warehouse capacity so it recommends a logistic service provider (hereinafter: “C”) located near company “A”. “C” and “A” enter into an agreement. “A” will use the logistic services of “C”, including warehousing, and the goods will remain owned by “A” until they are used by “B”.
The question is whether the call-off stock simplification rule can be applied in this case. The answer is no because the warehouse where the stock of “A” is stored is not owned or rented by “B”. The simplification rule would be applicable if this condition were changed.
If your foreign company is a supplier of a Hungarian partner and is considering having stock in Hungary, it is advisable to take a look at the tax planning options related to call-off stock. Feel free to contact us and our experts will gladly help you understand the rules related to call-off stock.