Advocate General: no simplified triangulation without the reverse charge wording

Advocate General Kokott advises the Court of Justice to hold that simplified triangulation does not apply where the invoice omits the statement that VAT is reverse charged.

In a cross-border ABC supply, business A supplies goods to business B, B supplies the same goods on to business C, and the goods are transported directly from A to C.

It is settled case law of the Court of Justice that where goods are transported from one member state to another, that transport must be ascribed to one of the supplies. Where it is ascribed to the supply from A to B and all the conditions are met, that supply is zero-rated in the member state of departure. B then makes an intra-Community acquisition in the member state of arrival, and also a taxable supply to C in the member state where the goods are located after transport.

Simplified triangulation

Where B is neither established nor registered in C's member state, those rules are cumbersome. The VAT Directive therefore provides for simplified triangulation, avoiding the need for B to register and file returns there. B is then treated as not making a taxable acquisition in the member state of arrival, and the VAT on the supply to C is reverse charged to C.

Conditions attach to the scheme. One is that B states on the invoice that the VAT is reverse charged to C. But what if it does not? In a recent opinion, Advocate General Kokott advises the Court of Justice to hold that the scheme then does not apply.

What this means in practice

If the Court follows that opinion, the consequences for B are as follows.

First, under the normal rules B makes an intra-Community acquisition in the member state of arrival and in principle owes local VAT on the supply to C. B must therefore register and file returns there.

Second, B also makes an acquisition in the member state of the VAT number under which it bought the goods from A, a so-called number acquisition. B can recover the VAT on it if it proves that it declared an acquisition in the member state of arrival.

In the Netherlands the tax authorities do not require B to state "VAT reverse charged" literally: they accept "intra-Community supply" as well. Tax authorities in other member states are not bound by that lenient reading.

A Dutch intermediary wanting to use the simplification would therefore be wise always to state expressly that the VAT is reverse charged to C, and of course to meet all the other conditions. Failing that, it risks assessments with interest and penalties in the member state of arrival.