Quick fixes: chain transactions and transport allocation

A chain transaction is understood to be a transaction involving two or more deliveries within one physical movement of goods. The basic rule is that only one delivery of goods, the one to which transport is assigned, can be exempt from tax. Problems arise when transport is arranged for by a middle party. Quick fixes introduce a simplification rule, according to which transport is primarily assigned to the first delivery of goods (i.e. the delivery between the seller and the middle party). Only when the middle party conveys to the seller their tax identification number issued by the member state in which transport begins, the transport concerned will be allocated to the delivery of goods between the middle party and the ultimate buyer. The first delivery is then considered a local supply liable to VAT applicable in the given country. However, even this simplification may cause some trouble, and the EC’s explanatory notes give detailed guidance in respect of some of these.  

The explanatory notes also attempt to define the criteria for ‘transport arrangement’, in particular whether it is necessary to consider the risk of losses of goods during their transportation, the contractual structure of the arrangement with the carrier, or who pays for the given transport. The last-mentioned fact on its own does not suffice to fulfil the transport arrangement criteria.  

Regarding the organisation of transport by a middle party, or on the middle party’s behalf and for its account, the Commission’s notes refer to the opinion of the CJEU’s Advocate General, according to which it is crucial to assert who bears the risk of potential losses during transportation.  To monitor only this criterion may in practice be problematic due to the distribution of risks under certain Incoterms delivery terms and conditions. In such cases, it is most appropriate to monitor which of the entities in a chain of transactions undertakes the necessary steps to ensure transport – either using their own means or via a contractual arrangement with a third party. This must be properly documented. The explanatory notes emphasise that the criterion of who pays for a given transport does not on its own suffice to determine the transport arrangement.  

The explanatory notes also state that the middle party may in principle authorise anybody to transport the goods and involve any participant of a chain of transactions, including the ultimate customer. In such a case, conditions of a proper contractual arrangement must be met. The same applies to conditions for the delivery of goods to another member state. Similar situations are risky and, therefore, it is necessary to make sure that the right to dispose of the goods as the owner is not transferred to the ultimate customer in the state in which transport begins.   

In the notes, the Commission also comments on the suspension of transport and the arrangement of transport using a greater number of means of transport. In this case, a thorough analysis of the transport concerned is essential: making sure that all parts of the transport are contracted by the middle party and that it really involves one indivisible transport.  

To assign transport to the delivery of goods to the middle party, it is vital to convey the middle party’s tax identification number issued by a state other than the state in which transport commences. The notes do not specify the form in which such a notification must be made but determine that this must be proven to the tax authority upon request. The Commission therefore recommends having written evidence proving that the tax identification number has been provided, either in an electronic or other form.