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Amendment to VAT Act for 2020: EC explains call-off stock arrangements

At its January session, the deputies’ chamber will discuss the amendment to the VAT Act introducing quick fixes in its second reading. Most neighbouring countries managed to implement the quick fixes before 1 January 2020. At the end of December 2019, the European Commission published a final version of the explanatory notes to quick fixes concerning minor and natural losses in consignment (call-off) warehouses not dealt with by the amendment to the VAT Act. The notes, among other things, also comment on the formation of fixed establishments for VAT purposes where consignment warehouses are concerned.

The Czech Republic failed to implement an amendment to the EU VAT Directive, the so-called quick fixes, on time. Consequently, in the first months of this year, Czech taxpayers may encounter problems arising as a result of the discordance between the Czech Republic and other member states that have already implemented the amended VAT rules. This may also involve problems of a technical nature, e. g., how to correctly declare supplies of goods to consignment warehouses located in other member states in EC Sales Lists. Czech taxpayers may also be taken aback by the new requirements of European suppliers regarding documentation proving the transport of goods to another member state.

The explanatory notes contain several illustrative examples that may also be useful for Czech taxpayers. One of the issues discussed are minor and natural losses in consignment (call-off) warehouses. This problem, which in practice is quite common and which without a certain tolerance limit may automatically result in EU suppliers’ registration for VAT, is not addressed by the amendment to the Czech VAT Act. The explanatory notes, referring to the conclusions of the VAT Committee (consisting of the EU member states’ representatives), determined a certain tolerance limit for these minor losses, amounting to 5% of the value or quantity of goods in stock, while leaving the final decision on the matter in the competence of the individual member states. This means that losses not exceeding the limit do not have to result in the breach of conditions for applying the simplification for call-off stock arrangements. 

The explanatory notes also deal with the formation of fixed establishments for VAT purposes in relation to the existence of consignment warehouses. Whereas the mere registration of a supplier for VAT in the member state in which a warehouse is located does not prevent the application of the simplification under the amendment, the formation of a fixed establishment for VAT purposes is incompatible with such simplification regardless of whether the fixed establishment participates in supplies through the consignment warehouse. A large majority of VAT Committee members agreed that a fixed establishment arises when a warehouse is owned (or leased) and directly operated by the supplier using their own means located in the member state.