Harmonization of regulation of chain transactions

Already in September issue of our Crowe News, we have informed you that the significant system changes in the area of VAT are waiting for us since the beginning of the year 2020. So called “quick fixes” are reflection of legislative changes at the level of the EU and their primary goal is elimination of differences in legal regulations of particular EU Member States and thus, strengthening of legal certainty, especially in the sphere of international transactions.

Therefore, “quick fixes” are bringing in harmonization of legal regulation at the level of national law and introducing the following:

• condition of knowing the VAT number of the acquirer and the declaration of the delivery of the goods in the European Sales List for the application of the VAT exemption of the supplies of goods to another EU Member State;
• significantly stricter rules for proving the transport of goods to another EU Member State;
• harmonized rules for the allocation of transport within the so-called chain transactions; and
• unified regime for the consignment stocks in the form of call-off stocks.

Today, we would like to focus your attention to the harmonization of rules for allocation of transport within the so-called chain transactions. Just for the sake of completeness, the chain transactions is such transaction with goods where during one transport, the right to treat the goods as an owner is transferred at least twice.

Currently, the regulation of chain transactions is in the competency of particular EU Member States. Nevertheless, following the case law of the Court of Justice of the EU, the rules are relatively harmonized. Court of Justice repeatedly stipulates that in the chain, the transport may be assigned only to one f the transfers of right to treat the goods as an owner, i.e. only to one supply.

Transport within the chain transactions shall be as of the year 2020 assigned based on the following hard rules:

• If the goods are dispatched or transported from one EU member State to another EU member State from the first supplier directly to the last purchaser within the chain, the transport shall be assigned to the supply provided to the mediation entity, i.e. to the supply between the first supplier and the (first) mediator.
• However, should the mediator inform the (first) supplier about its VAT ID No. assigned by the EU Member Statewhich the goods are dispatched or transported from, it is possible to assign the dispatch or transport only to the supply realized by the mediation entity, i.e. to the supply between the mediator and its (final) customer.

Thus, transportation within the chain transactions will be primarily assignable to the transaction between the supplier and the mediator. Only in the specific cases, the transportation will be assignable to the supply realized by the mediator. 

Given the above rules, please be informed that the INCOTERMS might be not applicable for tax purposes. Whether such solution is really the best, may be proven only via practical application.