New rules for exemption from VAT

As you could read in the previous issue of Crowe news, lawmakers will not let us rest in the fall. On the contrary, our clients and we, their tax advisors, must prepare for the most massive changes in the VAT system in the last decade. As a result of the latest amendment to the VAT Act, the so-called “quick fixes” will be introduced as of 1 January 2020 which are system changes concerning intra-community supplies of goods and related to legislation at EU level.

As mentioned in the previous issue, the changes concern the following areas:

• Introduction of the 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
• Stricter rules for proving the transport of goods to another EU Member State
• Definition of a common and harmonized rule for the allocation of transport within the so-called chain transactions
• Unification of the consignment stock regime in the form of call-off stock

Today we would like to take a closer look at the most important of the changes mentioned above, namely the rules for proving that the goods were indeed transported to another EU Member State. This change will have a practical impact on all subjects delivering goods within the EU since the physical transport of goods to the territory of another EU Member State is a necessary condition for the application of the exemption from VAT on such transactions.

It should be emphasized that this condition is not a novelty as such. However, it has not yet been stipulated how the transport to another EU Member State can and must be demonstrated.

However, as of 1 January 2020, the rebuttable presumption will apply that realization of the transport is proved provided that the person claiming the exemption (i.e. the supplier) has got the documents required in the Implementing Regulation to the European VAT Directive. Nevertheless, if the documents in question are not available to the supplier, he will not be able to exempt the supply from VAT and will therefore have to charge the Czech VAT at the applicable tax rate.

For the purposes of this arrangement, the documents needed to prove the actual realization of the transport can be divided into two groups, the so-called 'primary' documents relating directly to the dispatch or transport of goods and 'secondary' documents constituting other supporting documentation.

Primary documents include:

• signed document or consignment note CMR (standard international consignment note);
• bill of lading;
• air transport invoice;
• invoice from the carrier of the goods.

Secondary documents include:

• insurance document relating to the dispatch or transport of goods;
• bank documents proving payment for the dispatch or transport of goods;
• official documents issued by a public authority, such as a notary, certifying the end of the transport of goods in the EU Member State of destination, i.e. of delivery of the goods.

Provided that the transport is arranged by the seller (or a third party on his behalf), it is necessary to submit either:

 a) two primary documents, or

 b) one primary document and at least one secondary document. The submission of two secondary documents is not sufficient evidence.

Provided that the transport is arranged by the purchaser (or a third party on his behalf), the seller needs to submit (in addition to the documents above) also written statements of the purchaser with all statutory required essentials. This statement must be issued by the purchaser within 10 days of the month following the month of delivery.

In any case, the above documents must not be contradictory and must be issued by different, independent parties. At the same time, their issuers may not be dependent on the seller or the buyer (with the exception of the seller's declaration, which is inherently issued by him).

As can be seen from the above, obtaining documents may not always be a simple exercise. Thus, the tightening of the rules will not only increase the administrative burden but also the risk of additional tax assessment, including any interest on late payments and penalties.

Therefore, the proper process settings for document retrieval will be the key eliminating risk.

If this area is of concern to you, we would like to suggest that we go through different types of deliveries for different customers from other EU Member States, identify potential risks and set up processes to avoid any risks. If you are interested, please do not hesitate to contact us.