On 25 May 2018, the European Commission proposed a series of technical amendments aimed at introducing a definitive VAT system for intra-Community BtoB transactions. These changes should simplify the current system in depth and could come into effect on July 1, 2022.
The current transitional VAT system
When the common market was created in 1993, it was initially planned to set up a system in which the seller of a good is not liable for VAT in the Member State of departure.
Realizing that this system would not be ready by the time the borders disappeared, the Commission decided to set up a less ambitious system. This temporary system is still in place 25 years later.
This transitional system currently in force divides a single intra-Community sale into two separate transactions with regard to VAT:
- The seller makes an intra-Community supply in the Member State of departure which is exempt from VAT;
- The buyer carries out a taxable intra-Community acquisition in the Member State of destination.
This system increases the opportunities for fraud and presents a great complexity for businesses, thus constituting a brake on intra-Community trade.
The definitive VAT system to come
The abolition of intra-Community acquisitions
On May 25, the European Commission proposed amendments concerning intra-community BtoB transactions in order to set up a definitive VAT system to replace the current transitional VAT system.
With the adoption of the definitive system, the sale of goods being transported intra-Community transport will now be considered as a single transaction for VAT purposes qualified as an “intra-union supply”.
Thus, the notion of intra-Community acquisition will be abandoned.
The regime applicable to intra-union deliveries
The definitive system will also modify the territoriality rules concerning deliveries between two Member States.
Intra-Union BtoB deliveries will thus be taxable only in the State of destination.
The VAT payer in the Member State of destination will in principle be the seller. However, a reverse charge mechanism may apply under the following conditions:
- The seller is not established in the State of destination;
- The buyer is a certified taxable person.
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