Update on amendment to VAT Act for 2020 (quick fixes)

An extensive amendment to the VAT Act for 2020 (quick fixes), aiming to harmonise the VAT regime applicable to intra-community supplies of goods, has been submitted to the Chamber of Deputies. It implements the EU legislation and, therefore, within the operation of the VAT Committee, individual member states have expressed their opinion on matters including, e.g., natural losses in consignment (call-off) stocks and the formation of fixed establishments in the states in which goods are kept in stock. The states agreed on the need to establish a certain tolerance level, without which the application of simplification measures would be unfeasible.

The changes to VAT for 2020 will be some of the most crucial ones in recent history, covering all manufacturing and trading companies carrying out deliveries and purchases within the EU. These changes will be the subject of the KPMG Business Institute’s November training course designed to analyse in detail the transaction flows clients provide to us within individual workshops.

The second reading by the chamber deputies will take place in October; consequently, any potential amending proposals will be discussed in the November issue of our Tax and Legal Update. Below we present some of the EU member states’ opinions expressed within the VAT Committee on the most crucial problems associated with the quick fixes.

First discussed were natural losses in consignment (call-off) stocks, something that is quite likely to occur in the majority of cases. Unfortunately, neither the amendment to the Czech VAT Act nor the amendment to the EU directive explicitly deal with natural losses or provide any regulation. However, the member states agreed that it will be necessary to set a certain tolerance limit, as the application of simplifications for consignment (call-off) stock arrangements would otherwise be unfeasible and the registration of a supplier for VAT in the state in which the warehouse is located unavoidable.

Another widely discussed issue is the formation of a fixed establishment for VAT purposes as a result of consignment stock arrangements. Surprisingly, the EC has so far opined that where a warehouse is owned, operated or leased by a supplier, such a warehouse is de facto the supplier’s establishment for VAT purposes. The member states are not in agreement and would prefer a less strict and more diversified approach. The existence of the supplier’s fixed establishment in the state in which the warehouse is located generally prevents the application of the proposed simplification measures. The EC has promised to reflect the member states’ opinions and prepare relevant explanatory notes.