Quick fixes to introduce significant changes in 2020
A draft amendment to the VAT Act for 2020 introduces significant changes for consignment stock arrangements and intra-community transactions with goods. These quick fixes are aimed at harmonising the rules for the delivery of goods among the EU member states. Below we describe two of the four major changes.
The changes will become effective as early as in January 2020, are systemic, and the most significant in recent history, so preparations for them should not be underestimated and should commence as soon as possible.
Change to the VAT regime applicable to consignment stock arrangements
The transfer of goods to a warehouse in another member state for the purpose of their subsequent sale to a local customer generally requires the registration (or identification) for VAT in the state of sale. To reduce the administrative burden, it is currently possible to use simplification procedures such as call-off (consignment) stock arrangements, generally to avoid the redundant registration or identification for VAT of a European supplier in the state of ultimate sale. However, the rules for these simplification procedures vary materially in individual member states. One of the quick fix measures therefore aims to unify and simplify the procedures in these particular cases.
At present, the consignment stock regime in the Czech Republic functions as follows: the transfer of goods from another member state to the CR can be regarded as the acquisition of goods by a particular customer already at the date of transfer. The customer then self-assesses the acquisition of goods as early as goods are received into stock.
From 1 January 2020, the entire system of taxing consignment stock arrangements will completely change. According to the draft amendment, the customer will neither pay VAT nor declare the acquisition of goods from another member state earlier than at the moment the goods are actually withdrawn from stock. In connection with this, a new time limit over which goods can be stored has been set at twelve calendar months within which goods must be dispatched from the warehouse and taxed. The duty to monitor the time over which goods are stored may represent a significant administrative change to stock records. Another condition is that goods stored may not be lost or destroyed, since this could be classified as a violation of conditions for the application of simplification procedures. The question remains whether shortages within the limit or substantiated thefts and losses that are being recovered in due manner from responsible persons will be tolerated.
Conditions for VAT exemption of supply to another member state
According to the draft amendment, in all member states the exemption of the delivery of goods to another member state from VAT will only be applicable to sales to customers registered for VAT in that particular state. This condition will have to be duly verified via VIES. According to the existing case law of the Court of Justice of the EU, this condition has so far only been a formal one; from 2020, it should turn into a substantive condition, i.e. essential for the claiming of a VAT exemption. It should be pointed out that, in this respect, the Czech VAT Act is ahead of its time, as it specifies this duty beyond the EU VAT Directive. This measure will therefore not have a significant impact on Czech suppliers.
Other changes introduced by the draft amendment will be discussed in the next issue of the Tax and Legal Update.