“QUICK FIXES” VAT – EU-DELIVERIES: IS YOUR COMPANY READY FOR THE CHANGES COMING INTO FORCE ON JANUARY 1ST 2020?

The European Union is currently working on a major VAT reform, which should come into force by 2022.

Pending the implementation of said reform, EU members adopted transitional measures at the end of 2018, the primary objectives of which are to combat fraud and harmonise VAT regulations in the Member States.

These transitional measures, known as “Quick Fixes”, will be transposed in France in the 2020 Finance Act and will come into force as of January 1st, 2020:

  1. EU-deliveries : conditions to benefit from the VAT exemption
  2. Creation of a European consignment sales regime
  3. Uniformized chain sales regime

The immediate consequence of these measures is an increase in companies’ obligations and therefore, de facto, an increase in their tax risks.

Is your company ready?

1. EU-DELIVERIES : CONDITIONS TO BENEFIT FROM THE VAT EXEMPTION

Currently, according to Article 262 ter of the French Tax Code (FTC), EU-deliveries of goods are exempt from VAT when they are :

  • carried out for a fee
  • by a taxable person acting as such
  • to another taxable person acting as such in another Member State
    • Proof to be provided in order to benefit from the exemption: proof of the existence and validity of the purchaser’s VAT identification number.
  • for which the goods are dispatched or transported outside France to another Member State
    • Proof to be provided to benefit from the exemption: proof of the transport of goods outside France. This proof can be provided by any means (contract, insurance, order, etc.)

Starting January 1st, 2020, 3 substantive conditions must be met in order to benefit from the exemption. These conditions will significantly increase the complexity of companies’ administrative obligations.

a. VAT number: new substantive condition

Currently, obtaining the VAT number of your customer is a formal requirement. The need for this evidence has been largely devalued in practice. European and French case law has repeatedly pointed out that this is a formal condition (proof of existence could be provided by any means) and that the right to exemption cannot be rescinded by failure to communicate the buyer’s VAT number, provided that the material conditions for the EU-delivery are met.

As of January 1st, 2020, obtaining the VAT number before delivery becomes a substantial requirement. The seller must be able to prove to the French Tax Authorities that it has carried out the necessary verifications with regards to the buyer’s VAT number before the exemption is applied.

De facto, this implies for the seller:

  • the obtaining, prior to any transaction, of the purchaser’s VAT number
  • a systematic verification of the VAT number on the VIES website and the use of the timestamping system, making it possible to date the verification
  • a system for systematically archiving this evidence over 3 years

b. DEB: new substantive condition

The Declaration of Exchange of Goods (DEB) gathers both tax and statistical related information on flow of goods in Europe.

Currently, if the DEB was not or was incorrectly completed, (relatively limited) financial penalties could be applied by the Customs. However, these inaccuracies or omissions did not affect the benefit of the VAT exemption.

As of January 1st, 2020, the completion of tax information in the DEB becomes a substantial condition for the exemption of VAT in EU-delivery of goods.

De facto, this implies for the seller:

  • a timely filing of the DEB (any late filing may now call into question the benefit of the exemption for the transaction)
  • a verification of the accuracy of the tax information filed (any inaccuracy may now call into question the benefit of the exemption for the transaction concerned)
  • a verification of the accuracy of statistical information (the spotlight on the DEB in general could encourage Customs to carry out more systematic checks of the DEBs)

c. Reinforced proof of transport

Currently, to benefit from the exemption on its EU-deliveries, the seller must be able to prove that the goods have been dispatched or transported outside France. Such proof may be provided by any means.

As of January 1st, 2020, “Quick Fixes” introduce a rebuttable presumption, allowing an EU-delivery to be presumed exempt in the following specific cases:

  • If the transport is handled by the seller:
    • The seller is in possession of a transport document (CMR, contract, etc…)
    • The seller is in possession of either:
      • a 2nd transport document (CMR, contract, etc…)
      • another document annexed to the transport (listed on a closed list; e.g. insurance policy, document of a public authority)

The documents must come from “independent of each other” parties. According to the VAT Committee (meeting of 15 May 2019), the parties would not be considered independent if they have financial, economic or organisational links.

In the event that the elements allowing the application of the rebuttable presumption are not present, it is still possible to provide proof of transport by any means.

  • If the transport is taken care of by the buyer:
    • The buyer has provided the seller, no later than the 10th day of the month following delivery, with a certificate of shipment of the goods out of France
    • The seller is in possession of a transport document (CMR, contract, etc…)
    • The seller is in possession of either:
      • a 2nd transport document (CMR, contract, etc…)
      • another document annexed to the transport (listed on a closed list; e.g. insurance policy, document of a public authority)

The documents must come from “independent of each other” parties. According to the VAT Committee (meeting of 15 May 2019), the parties would not be considered independent if they have financial, economic or organisational links.

In the event that the elements allowing the application of the rebuttable presumption are not present, it is still possible to provide proof of transport by any means.

De facto, this implies for the seller:

  • a scrupulous follow-up of the documentation relating to the transport, regardless of whether it is carried out by the buyer or by the buyer
  • increased vigilance, because if proof by any means remains a means of recourse, the administration may adopt a more rigorous position on the validity of proof documents without presumption
  • a system for systematically archiving this evidence over 3 years

ALTEXIS can help you on your way to compliance :

  • audit of your current system
  • assistance in the implementation of new tools and processes to ensure your company’s compliance with its new obligations.

Visit our website for two more articles about the other “Quick Fixes”:

VAT Quick Fixes – the new European consignment regime: is your company ready for the changes planned for 1 January 2020?

VAT “Quick Fixes” – a uniform system for chain sales: is your company ready for the changes planned for 1 January 2020?

Your contact person: Marine Perrot – Lawyer at the Court

Article dated 28 November 2019 – Author: Me Marine Perrot, Attorney at law at the Paris Bar