Due to the abolishment of custom barriers within and the common custom tariffs outwards, the European Single Market constitutes a customs union. However, in order to achieve uniform market conditions throughout the territory of the European Union, a comprehensive harmonization of excise duties would be necessary. A VAT action plan from 2016 provides for the implementation of the destination principle. Interim simplification measures (“quick fixes” as of January 2020) are intended to help business owners reverse from the current system.
From the country of origin principle to the destination principle
So far, art. 402 para. 1 of the Directive on the VAT has provided for taxation in the Member State of origin. For example, if a product is sent from Berlin to Vienna, it will be taxed in the same way as a domestic delivery, i.e. the supplying business owner owes the VAT in Berlin and the recipient can claim the input tax deduction on site in Vienna.
The action plan “Towards a single EU VAT area – Time to decide” from 2016, states the taxation according to the destination principle as a goal. Pursuant to e-art. 402 of the Directive on the VAT, the supplying business owner becomes the person liable to tax in the Member State of destination, while the recipient would be able to submit the corresponding input tax deduction upon presentation of an invoice in due form.
Common VAT system
The harmonization of the European VAT law entails far-reaching changes and has therefore lead to emotional discussions. In order to increase the acceptance by the economy, some immediate measures (“quick fixes”) were determined for individual areas on 2nd October 2018. These become effective on 1st January 2020, and apply in general to all business owners during the transitional period until the implementation of a final, new VAT system.
The considered simplification measures are briefly presented below:
Simplified processing of consignment warehouse transactions
Consignment warehouse transactions are uniformly regulated throughout the EU from January 2020. This means for business owners that at the time when the goods are put into storage, no intra-community transfers have to be declared. Only at the time of removal of the goods due to delivery to the customer, an intra-community delivery must be declared.
Standardization of chain transactions (Reihengeschäfte)
In the case of transnational chain transaction constellations, the assignment of the active delivery represents a frequent issue and, in practice, repeatedly leads to settlement problems. If the intermediary business owner commissions the transport, the active delivery’s assignment can be taxed based on the VAT registration number (UID-number) either of the country of origin or the destination from 1st January 2020.
Burdens of proof for intra-community deliveries
From January 2020, it is mandatory for intra-community deliveries to fulfil the formal requirements in order to be able to apply the tax exemptions. For this, on the one hand, a valid VAT registration number of the buyer in the other Member State has to be at hand. On the other hand, the delivering business owner has to include the delivery in the recapitulative statement.
General reversal of the tax liability
Until 30th June 2022, the Council of the European Union permits a temporary general reversal of the tax liability for Member States that are most affected by VAT fraud. However, this general reverse-charge mechanism for all deliveries and services is only possible if certain thresholds are exceeded and only if certain criteria are met.
Need for action: Tax Compliance System
The upcoming alterations have to be incorporated into internal control systems and internal guidelines for invoicing in order to be able to act legally compliant. Likewise, it has to be ensured that every VAT registration number of a customer is inquired about professionally at the Federal Central Tax Office, and the according notification is provided as proof. Overall, the development of a tax compliance system makes sense in order to operate legally safe in the market and, where applicable, to reduce costs.