Control over your supply chain: getting the VAT rules right

Look at the actual movement of goods, not the invoice address. A common error that leads to the wrong rate, and to an assessment where the customer's VAT number is missing.

The actual movement of goods versus the invoice address

In this case it is essential to look at the actual movement of the goods rather than the invoice address or the customer's place of establishment. The goods are genuinely transported from the Netherlands to Spain, which means there is an intra-Community supply and not an export.

A common error in transactions in goods is to look at the invoice address instead of the actual movement. That can lead to the wrong rate being applied. A customer may be established in the same member state as where transport begins, or, as here, outside the EU while the goods go to another member state.

Can the zero rate be applied?

An intra-Community supply is a supply of goods from one member state to another, to which the zero rate may be applied where certain conditions are met:

• a valid VAT number for the customer. The customer must provide a valid number from the country of destination, or at least from a member state other than the one where transport begins.
• evidence of transport. The supplier must be able to show that the goods were actually transported to another member state, for instance with consignment notes or other shipping documents.

The problem in this case is that the customer cannot provide a valid VAT number. The conditions are therefore not met and the zero rate may not be applied. VAT must be charged, and the tax authorities can assess it. That underlines the importance of correct documentation and of validating VAT numbers.

The quick fixes in force since 2020 provide further clarification on intra-Community supplies, and they emphasise precisely this: proper documentation and valid customer VAT numbers.

Conclusion

Businesses making intra-Community supplies need to be aware of the relevant rules and procedures. Errors can lead to financial penalties and to a loss of customer confidence. By focusing on the actual movement of goods and on proper documentation, you apply the rules correctly and limit your compliance risk.