4 September 2019

Quick fix revolution at hand. What will affect companies the most?

In a couple of months, intra-community supplies will undergo radical changes to the VAT regime, probably the most significant ones in recent history. The mechanism of applying VAT on consignment (call-off) stock arrangements will change entirely: goods recipients will no longer pay VAT automatically when physically receiving goods into stock. The principle of assigning transport in a chain of transactions will also change. Corporations also have to prepare themselves for stricter conditions for reporting the delivery of goods within the EU and new requirements regarding the proving of transport of goods to another member state.

Petra Němcová
Kateřina Klepalová

Changes to the system will primarily involve consignment (call-off) stock arrangements. At present, the transfers of goods to stock are taxed automatically on the date goods are received into stock. According to the new regulations, taxation will be linked to the transfer of a right to dispose of goods as the owner. An amendment to the VAT Act also regulates other administrative duties applicable to the keeping of stock records and the reporting of transfers of goods in VAT reports. This will require the complete re-design of the current tax treatment of stock arrangements and changes to how these arrangements are recorded.

Another quick fix regulates the rules for the assignment of transport in a chain of transactions (involving two or more consecutive deliveries connected with one transport) where transport is arranged by a middle party in the chain. According to the new regulations, decisive will be what tax identification number is submitted by the middle party to the supplier. Only deliveries with transport will be classified as intra-community supplies that can potentially be exempt from VAT. Other deliveries will be treated as local deliveries liable to output VAT. This is an area of frequent inaccuracies discovered by the tax administration that often has to reclassify intra-community supplies to local supplies and assesses additional VAT.   

One of the most extensive and complex changes involves the proving of transport of goods to another member state. Running contrary to the current regulation, stricter requirements are to be in effect from 1 January 2020. Suppliers who want to prove that goods have been delivered to another member state (which is one of the conditions for exempting the supply from VAT) will have to have at their disposal two or three non-contradicting documents proving this transport. Moreover, these must have been issued by mutually independent persons. At the same time, the person issuing the document may not be dependent on either the seller or the acquirer. The question arises to what extent the requirement for independence will actually be feasible.

Finally, it will also be necessary to meet a new condition to be able to claim exemption from VAT, which is to correctly declare the supply in EC Sales Lists.  

All the above novelties quite substantially change the existing system. Therefore, we recommend preparing for them carefully.


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