ASD GROUP > FREQUENTLY ASKED QUESTIONS - INTRA-COMMUNITY VAT

Frequently Asked Questions - Intra-community VAT

In this FAQ, you will find the most frequently asked questions concerning VAT and European issues concerning intra-Community VAT.

VAT stands for Value Added Tax.

VAT is a tax on consumption.
In a production chain, only the final consumer pays VAT and cannot deduct any of it.
To prevent the entire burden falling on the retailer, legislature has made VAT apply to the entire production chain, but intermediary companies and retailers can recover VAT.

Such entities are called taxable persons.

VAT is a tax levied on the final consumer of goods or services. The final consumer is the person in the last position of the trading cycle, i.e. the one who buys the goods or services and uses them for their own personal needs.

VAT is a consumption tax. It is payable in the country where the product will be consumed, i.e. the country where the natural or legal person will consume or market the product.

Each country has its own set of rules.
For example, as VAT rates are set by each Member State, there may be different (reduced, standard or increased) VAT rates for the same product in different Member States.

Furthermore, it lies in each EU country’s own interest to collect VAT.
VAT impact on the budget share differs from country to country.

Each country has its own methods to declare, recover and refund VAT. As such, you must adapt what you do depending on the country where you are liable to pay VAT.

In the following sections, we will explain the basics in detail to help you avoid pitfalls.

A taxable person is an entity, usually a company, which independently carries out an economic activity.

It is important to make the distinction between “being a VAT taxable person” and “being registered for VAT” as it is the fundamental basis for knowing and determining your obligations in your Member State of residence and/or in the Member State with which you are doing business.

A person’s economic activity authorises that person to deduct VAT paid as part of its operation or production.
This means that, as a taxable person, you can do business in another Member State without being registered there. Be careful, however — registering for VAT is not a question of your own goodwill but rather of the type of business you do in that country.

Becoming registered for VAT involves obtaining a VAT number from the tax authority of an EU Member State other than your Member State of residence.
A company that carries out taxable transactions in an EU Member State must usually be registered in that Member State and meet all the relevant administrative obligations in that country.

As such, a company can have several VAT numbers in several Member States, but it can have only one VAT number per Member State*.
For example: a company cannot have two VAT numbers in France, but it can have a VAT number in France as well as one in Poland, Germany, Italy, etc.
*No exceptions will be made for e-businesses from 1 January 2021.

You should be aware, however, that most Member States do not issue VAT numbers automatically. You must apply for one and justify its usefulness.

What’s more, a VAT number alone is not enough; it must be activated in VIES (VAT Information Exchange System) before you are allowed to carry out intra-Community transactions. For example: if your customer gives you their VAT number but it has not been activated in VIES, you must invoice that customer with all charges and taxes included (see sections What about intra-Community supplies and VAT exemption? and "What is VIES (VAT Information Exchange System)?").

It is therefore essential to determine whether being VAT taxable is enough to carry out transactions with a Member State or carry out domestic transactions in another EU Member State and whether you must be registered there.

Do not confuse VAT registration with fixed establishment.
Being registered for VAT allows you to manage taxable transactions in other Member States and relates to VAT only.
Corporate tax is payable only in your country of residence.

In the same way as you file a VAT return for your local activity, you must file a VAT return in each EU Member State in which you carry out taxable transactions.

Just like you file a VAT return for your local transactions in your country, you must file a VAT return in the country in which you carry out taxable transactions.

To file a VAT return, you must first be registered for VAT with the local tax authority.

The European Union is made up of States that have national sovereignty in tax matters.

The European Union merely issues directives (an approach to take in order to achieve a given goal).

Each Member State chooses its own path to achieve that goal.

The challenge lies in knowing the local rules and ways to declare VAT in another EU Member State, i.e. what we call conditions as to substance and form.

It’s entirely possible that the same activity must be declared differently in different Member States.

More and more countries are opting for electronic means that require specific skills to manage the filing of VAT returns.

If you must declare VAT or taxable activities in another country and you don’t know that country’s taxation system like the back of your hand, consider seeking support from tax specialists — why not give us a call?

Please note that, as regards B2C transactions, new measures will come into force on 1 January 2021.

To use the appropriate tax term: “VAT territoriality”.

VAT is a tax on consumption payable by the final consumer in the country where the product will be consumed or marketed.

This is called the principle of “VAT territoriality”

Intra-Community VAT territoriality is a sensitive issue.

Whether we’re talking about B2B or B2C transactions, the place of taxation and the applicable VAT rate must be determined.

Bilateral B2B transactions:

A vendor in Member State A sells goods to a buyer in Member State B. The goods travel physically from Member State A to Member State B.

Usually in the case of such types of transactions, VAT is payable by the buyer in the country of destination.

Triangular B2B transactions:

Territoriality will depend on the incoterm, the physical flow of the goods, the billing flow, and the nationality of the parties involved.

The questions to ask yourself are:

  • Who manages the transport?
  • Where does the transfer of risk take place? (Not to be confused with the incoterm.)
  • What nationality are the parties involved?

Transactions involving a Community company and a non-Community company:

In addition to the incoterm and the physical flow, the point of exit from Community territory must be considered (an export-related formality).

The problem with VAT territoriality, which has been subject to the jurisprudence of the CJEU on many occasions, lies in highly specific points.

Each item of data is of paramount importance and changing a single one changes the territoriality.

Local rules also affect obligations. Transactions are processed differently depending on whether a territory requires registering for VAT or not.

To limit potential risks, together with its customers ASD has created a flow mapping system to help determine a transaction’s territoriality.

Territoriality is a key element because it is the focal point of your obligations.

There are no transaction templates; each company has its own DNA.
Together, let’s draw your map and eliminate VAT-related risks.

Each Member State has its own means and requirements for VAT payments.
Depending on the case, VAT will be withdrawn from a bank account, will be subject to an electronic payment order, or will need to be paid by bank transfer.

For mandatory withdrawals and electronic payments, it is often necessary to open a local bank account.

However, it is becoming increasingly difficult to open a bank account abroad these days if you are not a resident of that country.
To overcome this problem, ASD offers its customers tailored solutions.

Transfers must be made in the local currency. What’s more, you need to allow sufficient time for the transfer and cover any bank fees.
Most countries take account of the date that the funds are received, not sent.
Any delays in receiving funds and any transfer amounts lower than the declared VAT amount will result in penalties.

Please keep in mind that, while some Member States recognise the right to error and tolerate, as a matter of exception, delays and reduced payment amounts due to bank fees, other Member States impose sanctions for any discrepancies, with penalties that may seem disproportionate to the offence.

ASD will be happy to manage all your obligations using a banking system appropriate for your business. We can also manage all you payments so that you don’t have to.

When you work across borders, you must adjust to the rules of the country with which you are doing business. The rules stem from territoriality.

What are the rules?

It all depends on the transactions you carry out.
In the case of most bilateral transactions (a vendor in an EU country has sold goods and physically shipped them to a buyer in another EU country), the buyer is liable for any import duties and VAT obligations in their country.

Conversely, if you must process a transaction other than a bilateral one and which does not correspond to the one described above, we recommend mapping the flow of goods because your obligations will depend on the Member State and the status of the person(s) with which you are doing business.

When it comes to tax laws, conditions as to both substance and form must be met.
While VAT may be deductible for a taxable person based on substance, the VAT deduction may be called into question if formal requirements are not met.
An error in interpreting your obligations could mean roughly 20% of your turnover going up in smoke (20% is the average higher VAT rate in the EU).

Where and how to adapt them?

A simple metaphor will help you understand the system quickly.

We need only compare taxation and the highway code.
If you drive on the right side of the road in your country, you will drive on the left if you travel to the United Kingdom and vice versa.
The same goes for taxes. You can claim VAT back on restaurant meals in France but not in Germany.

You need to place yourself in the country with which you are doing business and comply with the formal conditions that we mentioned earlier.

Each Member State is sovereign when it comes to implementing EU directives in its own regulations; the process is called “transposition”.
As each Member State has the sovereign right to decide on its own regulations, directives are transposed in different ways and adapted to local laws.

That is why there are variations in form for the same transaction from one Member State to the next.

As such, it is essential to know the formal requirements, or the “tax highway code”, if you want to work in another Member State.

Whether in substance or in form, do not trifle with the last four years of your VAT (prescription period).

Intra-Community VAT is a complex matter. ASD has made it one of its fields of expertise. Get in touch if you would like to discuss personalised support (free quote).

A taxable person can deduct VAT paid on purchases. This is what we call deductible VAT. Be careful, however — VAT can be deducted only if conditions as to substance and form are met (see section 6).

VAT must be either included on your VAT return within two years or be subject to a refund request (see section 8).

There are several ways to use deductible VAT.
– Either by obtaining a refund;
– Or by deducting from your collected VAT.

In both cases, however, authorities will verify whether substantive and formal conditions have been met.

Be careful with the reverse charge mechanism (see section 12).
The reverse charge is made up of collected VAT and deductible VAT.

The deductibility of VAT as part of a reverse charge procedure must also meet the same conditions as to substance and form as VAT that is deductible under common law.

Even if no VAT will be taken out of the cash flow when you are subject to a reverse charge procedure, failure to declare VAT will entail financial consequences.

Need help? The tax advisors at ASD will help make your processes as efficient as possible. Hold on to your VAT.

There are several ways to recover deductible VAT or receive a VAT refund.
Please note, however, that companies are not free to choose the refund method.

They must use the procedure that applies to their specific case depending on the transactions they carry out.

The correct mechanism depends on the transactions carried out in the Member State concerned by the deductible VAT.

Scenario No. 1: You do not carry out any taxable transactions in the Member State where you have deductible VAT:

You must submit a refund application.
For companies in EU Member States, this must be done before 30 September of the year N+1 (procedure under Directive 2008/09/EC).
For companies outside EU Member States, this must be done before 30 June of the year N+1 (procedure under the 13th VAT Directive).

After these dates, any deductible VAT will be irrevocably lost.

Filing conditions are discussed below.

Scenario No. 2: You carry out one or several taxable transactions in the country where you have incurred VAT:
You must file VAT returns in this country (the return may be filed either through your tax agent or by your mandatory tax representative).

Generally, deductible VAT must be included in your tax return within two years of the right of deduction arising (invoice or payment date depending on local regulations in force).

Once the deductible VAT stated in the return has been credited, its use is no longer limited in time and the deductible VAT credit can be recovered in one of two ways.

  • A) You have collected VAT in the country in question, which means that you will be able to deduct the credit on your VAT return and will therefore need to pay less VAT to the tax authority. You will automatically recover VAT indirectly in your accounts and cash flow.
  • B) You have not collected VAT in the country in question, in which case you can submit a refund application through your VAT returns. Refund procedures and timeframes vary by country.

Keep in mind that, regardless of the method used, you must closely adhere to the substantive and formal requirements.

Let’s take an example:
Your supplier charges you VAT. However, the invoices do not comply with the requirements or you have been charged VAT unjustly.
You include these invoiced in your VAT credit, which you then deduct from your collected VAT.
The tax authority may call this VAT into question and demand that you pay it for the entire prescription period (four years being the European average).

It is therefore essential to ensure that VAT has been charged correctly on every supplier invoice.

B2B Business-to-Business: It involves a transaction between two VAT taxable persons (see section 2).
B2C Business-to-Consumer: It involves a transaction between a VAT taxable person and non-taxable person.
VAT management rules are different for B2B and B2C.

B2B
Most B2B intra-Community supplies are not subject to taxes, which does not necessarily mean that VAT does not need to be declared (see section 12). On the contrary: for an expenditure to be tax-free, several conditions must be met.

If any of the above conditions are not met, the transaction becomes taxable.
You must also include specific statements on your invoices, such as your customer’s valid VAT number and the article of the tax code relating to invoices excluding tax.
Again, rules differ depending on the country and whether the exemption is called into question will depend on local regulations.

Tax and customs authorities review whether intra-Community supplies are valid and may call into question a VAT exemption during the prescription period, which lasts between three and six years depending on the country.

Other B2B transactions either include all taxes or exclude tax depending on the country, with specific conditions and requirements.
It is worth reminding that each country is sovereign in how it functions (see section "Which rules to follow?"), which means that the same type of transaction may be processed differently in different countries.

A VAT reform is planned for 2022. The rules may therefore change, but discussions between EU countries are still underway.

B2C
It involves a transaction between a taxable person and non-taxable consumer (see section "What is a taxable person?").

As VAT is a tax on consumption, the “C” (Consumer) must pay VAT on their purchase.

The most common B2C transactions include:

  • Distance sales
  • E-commerce: online sales
  • Sales through distribution platforms

The “C”, a non-taxable buyer, must pay VAT on their purchase regardless of the circumstances. The rate is determined according to the conditions set by “B” (the vendor) and the flow of goods (see section "What are the differences between online sales, e-commerce and distance selling?").

Whether a company is involved in B2B or B2C sales is one of the factors to keep in mind when managing obligations relating to intra-Community transactions.

For intra-Community supplies, proof of delivery is one of the elements required to be granted a VAT exemption. As such, it is essential.

The proof of delivery is in the form of a transport document called an “international consignment note”, more commonly known as “CMR” (from the French name of the convention based on which the document was developed).

CMR is a document issued by the carrier; it is drawn up in several copies.

      • One copy for you, the “vendor”, given at the time of collection.
      • A counterfoil that remains in the carrier’s carnet.
      • A copy for your customer, the “recipient”, who will sign it at the time of receiving the goods.

A copy for the carrier that will be signed by the recipient at the time of receiving the goods.

The CMR document that you must provide to the tax authority to justify your VAT exemption during an audit is not your own “vendor” copy, but the carrier copy, which must include your customer’s name, signature and company stamp as well as all relevant information about the goods, the carrier and the place of delivery, i.e.: a so-called duly signed CMR.

For intra-Community supplies, the proof of delivery must prove that the goods have definitely left the national territory and are destined for another Member State of the European Union.

In reality, it’s not that simple. It is often difficult to obtain duly signed CMR documents.

  • Either all of the transport is subcontracted to several owner-operators and, in this chain, each carrier issues their own CMR.
    This means that the carrier that collected the goods from your facilities may not necessarily be the same carrier that delivers them to your customer.
  • Or, in the case of bulking (when the goods do not require an entire trailer load).
    This type of transport is carried out by passing through several different hubs.

Collection from your facilities is followed by cross-docking in a regional hub.
Batches of goods are grouped to make up an entire trailer load.
The main transport takes place between the hub of the Member State of provenance and the hub of the Member State of destination.
Lastly, the goods are delivered to your customer.

As you can see, in such cases there is no CMR because the transport between the Member State of provenance and the Member State of destination involves only one global CMR for all the goods in the vehicle being used for the main transport.

What to do if there is no CMR?

Until 31 December 2019 it was required to provide a body of evidence, but tax authorities could reject all or some of this body of evidence and charge VAT regardless. It was the taxpayer’s responsibility to provide proof that the goods had left the national territory.

Many appeals were filed with the Court of Justice of the European Union (CJEU).

Since 1 January 2020, the European Commission has added a new article, Article 45(a) to Regulation (EU) No 282/2011, which harmonises the management of proof of delivery.

A CMR document is still the main item of proof of delivery, but the new article requires that the vendor provide:

  • Two items of proof of delivery if the vendor organises the transport;
  • Three items of proof of delivery if the customer organises the transport.

If you fail to provide this proof, you are liable for VAT and it is your responsibility to provide evidence that your goods have left the national territory.
As such, POD accounts for 20% of your turnover on average because it calls into question the exemption from VAT by making the latter irrecoverable.

If you have the required proof pursuant to Article 45(a), however, it is the tax authority’s responsibility to prove that the goods remained on the national territory.

For more technical details about proof of delivery, read our blog post entitled “Quick fixes” or visit our platform, KYANITE.

KYANITE is a major tool created by ASD that helps manage and pool your proof of delivery (POD) items together with your customers and carriers.
KYANITE also provides:

  • support through automatic follow-ups;
  • monitoring of missing proof;
  • estimates of financial risks to your company in the event of an audit.

A personalised dashboard shows your situation in real time.

An intra-Community supply usually excludes tax.

  • Is there a risk to my company as regards VAT?
  • Should I worry about VAT in the case of transactions excluding tax?

In both cases, the answer is a resounding yes.

It may seem strange if you are not a tax specialist, but yes: intra-Community supply such as exportation (dispatch of goods outside the European Union, see our Frequently Asked Questions about Customs resource (in French for the moment)) are considered to be taxable transactions according to tax regulations.

Why?

Because an exemption must be justified. If you are unable to justify it, you become liable for VAT — for the entire tax prescription period, no less (between three and six years depending on the country).

We teach our customers to reason differently when it comes to exemptions.

They shouldn’t tell themselves:
I’m selling to a company abroad, so I don’t need to pay tax.
This way of thinking is completely wrong and dangerous.

Instead, they must tell themselves:
I’m selling to a company abroad, so my transaction is taxable in principle.
What gives me the right to apply a VAT exemption and sell excluding tax?

To summarise:
You are liable for VAT for all transactions excluding tax carried out in the last three to six years.
Now, let’s look at what you need to provide to an auditor to justify your transactions being exempt.

Substantive conditions:

  • The principle of VAT territoriality applies.
  • The transaction I’m carrying out allows for it.
  • The regulations of the country in which I’m carrying out the transaction allow for it.

Formal conditions:

To obtain an exemption for an intra-Community supply, you must meet four cumulative conditions:

  • 1 – Your customer is a VAT taxable person and has a VAT number that is “valid” in VIES;
  • 2 – You have proof of delivery that your goods have left the national territory (mandatory physical flow) and are destined for another Member State.
  • 3 – You have filed your Intrastat Declaration or EC sales list (DEB in France) with the relevant tax authorities;
  • 4 – Your transactions meet all formal and territorial conditions.
    Don’t forget that these conditions are “cumulative”, which means that if even one of the four is not met, you are liable for VAT.

The same goes for intra-Community acquisitions (see section 12, reverse change mechanism).

Don’t take risks with your company. We have specialists and tools to which you can entrust the management of your compliance and security with peace of mind.

The VAT reverse charge mechanism is a simple but delicate procedure.
In principle, when a taxable person buys goods or services, they must pay VAT to the supplier. VAT is then recovered through the VAT return or a refund request. The time between paying VAT and recovering it often leads to cash flow mismatches.
To avoid such mismatches, vendors are sometimes allowed to reverse charge VAT, i.e. collect and deduct VAT at the same time on the same VAT return. This means that when the reverse charge is applied, the transaction is neutral as regards VAT and the invoice is issued excluding tax.

Please note that there are several different reverse charge procedures, which apply only to specific cases and under certain conditions.

Company owners often underestimate the importance of the VAT reverse charge mechanism. We often hear: “Either way VAT is zero or there is no VAT”.

Don’t make the same mistake. In tax terms, you credit VAT to taxes (you pay it), then you debit it from taxes (you deduct it).

Schematically, you first pay VAT at the top of your VAT return, then only afterwards do you deduct it at the bottom of your return. In space and time, you have already debited your VAT, so if the transaction stopped there, VAT would be due.

As you are filing these collected and deductible VAT transactions for the same amount, at the same time and on the same VAT return, mathematically the result is zero.

So where are the pitfalls and what happens if I fail to declare my reverse charge?

FIRST, LET’S TALK ABOUT THE PITFALLS:

There are several different types of reverse charge procedures.
Some are Community-wide, others relate to a specific country.

Here are a few types:

  • Intra-Community reverse charges on intra-Community acquisitions or services (EC sales list, or DES in France).
  • Local reverse charges: on importations, on construction, on local sales by foreign companies, on property, on electronic products, etc.

In short, there is a myriad of possibilities to apply the reverse charge mechanism.

Two questions arise, however.

  1. Must the transaction I’m carrying out be subject to a reverse charge?
    It is important to know this because the consequences resulting from an error may be significant. It is just as detrimental to apply a reverse charge by mistake as it is to fail to apply one when it is mandatory to do so.
  2. Does the reverse charge I’m indicating on my tax return reflect the transaction correctly?
    Filling in the wrong reverse charge line is the equivalent of not declaring it at all, with all the consequences that come with such an error.

NOW, LET’S LOOK AT THE CONSEQUENCES:

First of all:
The reverse charge procedure is not optional. It is a requirement resulting from the regulations in force and is linked to the transaction that you carry out and its territoriality.

Applying the reverse charge mechanism to a transaction when it should have been carried out in accordance with common law (with taxation) entails just as many consequences as carrying out an operation in accordance with common law when the reverse charge mechanism should have been applied.

Second of all:
There are links between the reverse charge that you indicate on your VAT return and other returns filed by you or your customers and suppliers.

Tax authorities use your data to cross-check transactions.
For example: Filing a reverse charge for an intra-Community acquisition on your VAT return makes it possible to cross-check it with:
The Intrastat Declaration (or DES in France) if you are liable;
Your supplier’s intra-Community dispatch declaration (Intrastat Declaration or EC sales list, or DEB in France);
Your supplier’s VAT return.

Technically, cross-checking between States is more complicated, but you should keep the principle and image in mind.

Third of all:
It is important to fill in the VAT reverse charge on the correct lines on the VAT return and to file any annexed declarations at the risk of distorting their counterparts and causing audits.

A reverse charge declared incorrectly is considered not declared.
For example: You declare a local purchase subject to a reverse charge as part of your intra-Community acquisitions.

  1. You have not paid VAT on the local purchase, which may be reassessed, with all the resulting consequences.
  2. You have incorrectly input a VAT credit on an intra-Community acquisition, which may result in you being required to reclaim that credit.

Fourth of all:
Using a reverse charge procedure incorrectly may negatively affect your customer’s deductible VAT.
If you invoice your customer in accordance with common law (including VAT) but the transaction should have been invoiced as a reverse charge, your customer will lose their right to a deduction.
This means that when your customer undergoes a tax inspection or applies for a refund, the tax authority will reject the invoices with wrongly-paid VAT.
This would put both you and your customer in a very tricky situation. (Read more)

Fifth of all:
Reverse charge procedures do not all have the same tax consequences.
As we explained at the beginning of this paragraph:
Schematically, you first pay VAT at the top of your VAT return, then only after do you deduct it at the bottom of your return. In space and time, you have already debited your VAT, so if the transaction stopped there, VAT would be due.

Next, you must consider the limitation period for the exercise of the right to deduct VAT.

As part of the reverse charge mechanism, VAT liability and VAT deductibility do not have the same prescription periods.

Generally (periods differ depending on the declaration country), VAT liability lasts from three to six years, while the deduction limitation period lasts two years.

In short, if you fail to reverse charge your transactions or if you do so incorrectly, the tax authority has the right to penalise you, for example by charging you for four years of VAT but taking into account only two years of deductible VAT.

The figures add up quickly: 4 years of debit – 2 years of credit = 2 years of readjustment to pay (non-deductible).

The procedures are contentious and involve disputes, of course, but the tax authority often wins the case because the regulations are clear and case-law is moving along these lines.

It makes sense to seek support from tax specialists — even with “zero VAT”, the stakes are high.

Don’t confuse e-commerce with distance selling.

“E-commerce” and “online sales” are non-legal terms that simply mean selling goods or services through the Internet, regardless of the customer’s status (taxable person or individual) and regardless of the physical flow of the goods (internal, within the Community or outside the Community).

Conversely, “distance selling” is a legal term that refers to a specific VAT scheme. The scheme applies exclusively to selling to individuals when the goods are transported by the vendor from one EU Member State to another EU Member State.

Take note, however: distance selling rules will be changed drastically from 1 January 2021.

For many years, e-commerce has been growing fast. E-merchants are multiplying worldwide, and the web has become a giant global hypermarket.

Tax authorities had to act to ensure that the flood did not became a no man’s land of out-of-control markets.

They faced two challenges:

  • Unfair competition for EU merchants;
  • Enormous amount of VAT fraud.

Rules were therefore introduced to regulate this market.

1) The principle of e-commerce.

You should first be familiar with the basic principles before we go into details. There are several different possibilities and your obligations will depend on your sale and distribution channels. As such, you may have several different formalities to fulfil.

When a company sells its products on the web, it has two options.

  • Either you create your own website.
  • Or you go through a distribution channel.
  • Or both.

What types of sales can be carried out?

  • Sales of goods.
  • Sales of services.

The sale is then completed, and your customer is:

  • B2B – your customer is a taxable person.
  • B2C – your customer is a non-taxable person.

Lastly, the supply:

  • Either you ship your goods from your company directly.
  • Or you entrust your goods to an online sales platform.
  • Or you buy the goods from a supplier and ask them to ship the goods directly to your customer (this is called drop shipping).
  • Or you sell electronic services.
  • Or you sell non-electronic services.

E-commerce B2B sales follow the common law system.

In the case of B2C sales, the sale will include all taxes, of course.
Depending on the above data, your obligations will be different and will indicate the correct VAT territoriality:

  • Either the VAT of the vendor country.
  • Or the VAT of the buyer country.

You then need to figure out if you are involved in distance selling or e-commerce.
See the start of this section.

Distance selling thresholds do not apply if, at the time of the sale, the goods are located in the country of the buyer or if the goods are imported into the country of the buyer as part of drop shipping (in which case it is e-commerce and not distance selling).

Conversely, if the transaction involves distance selling (vendor country A > buyer country B), you must keep thresholds in mind.

  • If you are below the threshold: you invoice the VAT of your country.
  • If you are above the threshold: you invoice the VAT of your customer’s country.

*You can find more details on thresholds and their mechanisms on the relevant page of our website www.asd-int.com in the “Distance selling and E-commerce VAT rules” tab.

On 1 January 2021, the rules for e-commerce will change completely.
As such, we will change this section at a later date, but the current distance selling rules apply until 31 December 2020. Retrospective checks performed from 1 January 2021 will need to take account of the old rules until the prescription period.
It will therefore be necessary to be aware of obligations applicable until 31 December 2020 for a few years.

ASD has created a dossier that we update regularly.
We urge e-merchants to pay attention. You need to prepare because this reform will affect you.
Based on our initial conclusions, there will be two groups of e-merchants.

  • One group for which the rules will become simpler,
  • and a second group for which the rules will be much more complex. The same company may need to have three different VAT numbers and three different VAT returns for the same country.

ASD’s services include an analysis of your flows and management of your future obligations.

These declarations help control intra-Community flows.

  • Am I required to file them?
  • What if I fail to do so?
  • What are the differences between these declarations?
  • Where do I file them?

Yes, these declarations are important, and they are all interlinked. They contribute to your obligations and rights related to VAT.

First, what is the difference between the DEB, the Intrastat Declaration and the EC sales list?

There is a difference between French companies and other European companies.

The French “DEB”, or “Déclaration d’Échanges de Biens” (Trade of Goods Declaration), is the equivalent in France of the Intrastat Declaration and the EC sales list in the rest of the European Union.

In both cases, the declarations fulfil two functions:

    • Statistics;
    • Taxation and VAT controls in trade.

In France, the DEB fulfils two functions.
In the rest of the European Union, the Intrastat Declaration is intended for statistics, while the EC sales list is intended for controlling intra-Community VAT.

Statistics
Statistics are necessary for being aware of foreign trade figures. In some cases, statistics can be used to manage stock prices.

I remember an anecdote from early 1993, a few months after the EU borders opened. French endive producers did not file their dispatch DEBs. As a result, sales statistics relating to exportation fell and stock prices for the endives market collapsed.

A country must know the figures of its foreign trade; the information is essential for policy strategy.

Control of intra-Community VAT
The DEB in France and the EC sales list in other Member States are used to control VAT linked to intra-Community trade.

When a French company files a dispatch DEB or a company in another Member States files an EC sales list, cross-checks are made at national and Community level.

Schematically

        • At national level, the DEB is cross-checked with the VAT return.
        • At intra-Community level: Brussels cross-checks the vendor’s shipment declarations and the buyer’s import declarations.

Tax inspectors and customs officials use these data to present taxpayers with a list of undeclared intra-Community transactions. Such audits usually end with an unpleasant notification.

Regardless of the declaration, liability thresholds range from 0 to XXX euros (or equivalent).

Thresholds are calculated over a calendar year and declarations must be filed from the month when the thresholds are exceeded.
If you fail to submit one, there is a possibility of rectification, but it may entail sanctions.

If a tax authority identifies any deficiencies, rectifying your records will be mandatory (often within a short period of time) and will entail sanctions.

Rectifying your records spontaneously is recommended for two reasons:

        • There is no deadline, so preparing the rectification is more flexible.
        • Sanctions may be lower or not applied at all (the sanction amount and the risks are the same regardless of whether the rectification is spontaneous or imposed, but generally the tax authority takes into consideration the taxpayer’s good faith if they act spontaneously).

The DES, also known as the “Déclaration Européenne de Services” (European Services Declaration).

The DES is a tax declaration that controls intra-Community VAT for services sold as part of B2B transactions.
It is the equivalent of the DEB or the EC sales list for goods.

Rules relating to violations are the same.

Keep in mind the reverse charge mechanism (see section "What is the VAT reverse charge mechanism?").

Where to file these declarations?

Each country has its own collection centres. Generally, tax and/or customs officials are involved.

Most of these declarations can be filed electronically. ASD has developed tools that make managing these declarations easier and we can help you in many ways: support, mapping of your flows and obligations, and entering and filing declarations. We are able meet all your needs.

Each EU or non-EU taxable person must be identified within the VIES database to be able to carry out intra-Community transactions.
What happens if my customer is not “valid” in this database?

VIES is the EU database of taxable persons identified as VAT registered.

Anyone can view it (the link can be found on asd-int.com).

To carry out an intra-Community supply exempt from VAT, your customers must have an intra-Community VAT number that is valid in VIES.

All you need to do is enter your customer’s VAT number into this database and you will receive your answer immediately: “Valid number” or “Invalid number”.

  • If the number is “valid”, you can invoice excluding tax (conditions apply).
  • If the number is “invalid”, you need to invoice including taxes (for rates, see section "Which rules to follow?").

Be wary of pitfalls!
It would be easy if every VAT taxable person were automatically included in VIES, but unfortunately that’s not the case.

Member States are free to decide whether to include a taxable person in VIES or not.

A few Member States automatically list a taxable person in VIES. Others require you to apply and prove that the applicant’s intra-Community activity requires registering in VIES.
As such, it is not enough to ask for your customer’s VAT number; you must also ensure that it’s valid. (As a reminder: No valid VIES = no VAT exemption.)

To make things even more complicated, some Member States are quick to deactivate VAT numbers, even with ongoing activities in VIES.
For various reasons, some companies may have not carried out intra-Community transactions for a certain time; others may be involved in disputes or have unsettled debts with their local tax authority.

In good faith, you have fulfilled your responsibility and ensured that your customer’s VAT number is valid in VIES.
Then one day you receive a notification that you have been found to have underpaid VAT for this customer, who is “invalid” in VIES.

It’s important to regularly check the status of your customers in VIES and take screenshots to be able to prove that their status was “valid” at the time of the transaction.

Of course, such time-consuming tasks can be done or not depending on who your customers are. If you work with large national companies, it is unlikely that their status will be deactivated in VIES. In the case of small and medium-sized enterprises, however, it is best to protect yourself.

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