VAT warehouses - who will gain, and who will lose?

VAT warehouse concept

The institution of VAT warehouse is regulated under the VAT Directive 2006/112 as an optional element of VAT. Under Article 157 of the Directive, Member States may exempt imports and supplies of goods which are to be placed under a storage procedure other than a customs warehouse. Furthermore, Member States, under Article 158 of the Directive, may implement the institution of VAT warehouse for goods when they are intended for:

• tax-free shops, for the supply of goods to be carried in the personal luggage of travellers going to a third territory or to a third country by air or sea, where such supplies are exempt under Article 146 of the Directive (export destination);
• the taxpayers for the purpose of making deliveries to travellers in aircraft or vessels during a flight or sea voyage if the place of arrival is outside the EU;
• taxpayers for the purposes of supplies made with exemption from VAT under Article 151 of the Directive (in the framework of consular, diplomatic, NATO relations, etc.).

According to the solution proposed by the Ministry of Finance, a VAT warehouse should be understood as a customs warehouse as referred to in Article 242(1) of the Union Customs Code but excluding the storage of excise goods. VAT warehouses could only be operated by entities already authorised to operate a customs warehouse.

Placing goods under a VAT warehouse

Under the approach presented, strictly defined transactions could be carried out in a VAT warehouse:

• placing in a VAT warehouse - subject to a 0% rate;
• storage of goods;
• supply of preservation services on stored goods - subject to the rate of 0%;
• removal of goods from a VAT warehouse - subject to the VAT rate applicable to the goods.

However, while the goods are stored, it would not be possible to supply them. If the goods in the VAT warehouse were to be supplied, the goods would be moved out and tax liability would arise.

Tax settlement and liability

In VAT warehousing, the obligation to pay tax on the stored goods is deferred until the goods are removed from the warehouse. In doing so, the tax obligation is imposed on the entity moving the goods out. It should be noted at this point that, in addition to the payment of tax upon moving the goods out, during VAT warehousing, the Ministry of Finance expects a VAT security to be provided. This security could most likely be provided by the warehouse keeper.

When the goods are removed from the warehouse, the taxable base should be increased accordingly by the value of the services performed on the goods. Moreover, the taxable base will be increased by losses of the stored goods.

During the storage of goods, the warehouse keeper will be jointly and severally liable for tax losses in the stored goods. Furthermore, the warehouse keeper will also be obliged to maintain records of the warehouse and send the relevant declarations to the tax authorities.

VAT warehouse vs. customs warehouse

In the consulted proposals, the Ministry of Finance presents the concept of a VAT warehouse, the functioning of which is almost symmetrical to that of a customs warehouse under the customs legislation. The actual difference between the two institutions lies, inter alia, in the lack of an actual top-down destination for goods covered by a VAT warehouse. Unlike a customs warehouse, goods in a VAT warehouse can be traded domestically and internationally without the need for customs procedures.

Another difference may be the activities that can be performed on the stored goods. Customs regulations allow so-called customary activities to be performed on goods in customs warehouses. Within the framework of a VAT warehouse, the Ministry has defined an undefined catalogue of services directly related to goods in a VAT warehouse. It may be that the range of applicable services will turn out to be broader than those used so far in customs warehouses.

In other aspects, the proposed scope of VAT warehousing appears to be symmetrical to customs warehousing.