Policy change: no simplified triangulation without the reverse charge wording

Until recently the Dutch Tax Administration accepted the wording "intra-Community supply". Since 2 September the invoice must literally state that VAT is reverse charged, or the simplification falls away.

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 intra-Community 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, A's 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, which avoids B having to register and file returns in C's member state. 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 simplification. One is that B states on the invoice that the VAT is reverse charged to C.

The Court of Justice

What if B has not done so? At the end of last year the Court of Justice held that the simplification then does not apply. For B that means two things.

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 that acquisition if it proves that it declared an acquisition in the member state of arrival.

Policy amended

In the Netherlands the tax authorities did not require B to state "VAT reverse charged" literally: under policy, "intra-Community supply" was also enough. That lenient reading was amended with effect from 2 September. From that date B must state "VAT reverse charged" on its invoice to C in order to use the simplification. Without it, the simplification does not apply. The tightening has since been reflected on the tax authorities' website.

B must continue to report the supply to C in the recapitulative statement and in box 3b of the VAT return. Nothing changes on that point.