Chain transactions from a VAT perspective

The situation described above is referred to as a supply of goods in a chain and the determination of the place of supply for both the seller and the other intermediaries who supply the goods is essential for the correct application of VAT in such transactions. The basic criterion is whether the supply of goods is accompanied by transport. Furthermore, the moment of transfer of economic ownership to the customer, i.e. when/where the right to dispose of the goods as owner was transferred to the customer.

Suppose all transactions take place on the territory of the Czech Republic. In that case, they will always be domestic transactions, both for deliveries with transport (place of performance where the transport begins) or without transport (place of performance where the delivery is made). In cases where a supply to another Member State also takes place within the chain, it is already necessary to determine exactly which supply is with transport and which is without transport, as this will have a practical impact on the tax consequences from a VAT perspective.

It is important to note that, where a supply in a chain is accompanied by a transport from one Member State to another, the transport can be attributed to only one of the supplies in the chain. In this way, the supply of goods to another Member State is clearly identified as a supply which can claim exemption on delivery to another Member State. The other supplies in the chain should be treated as supplies of goods without transport which cannot be exempted from VAT as supplies of goods to another Member State.

Further, it is always necessary to identify who in the chain is providing the transport (whether it is the supplier, the intermediary or the final customer or the authorised person) and then to determine which deliveries will be with transport and which will subsequently be assessed as deliveries without transport. The VAT implications may vary, and it is possible that some links in the chain will be:

• obliged to VAT registration in another Member State; or
• unable to exempt the supply of goods to another Member State.

If your company is involved in such supplies of goods (whether as a first supplier, intermediary or final customer), we recommend assessing the VAT implications of the entire transaction (preferably before the actual implementation) to ensure that the chain transaction does not result in an unwelcome VAT chain reaction.