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EU VAT and Cross-Border Trade

The Essentials of UK VAT
The Essential Guide to UK VAT and International Trade
The Essential Guide to UK VAT and International Services
The Essentials of UK VAT for Purchase Accounting Staff
The Essentials of UK VAT for Sales Accounting Staff
The Essential Guide to VAT and Property
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The Essential Duties of a Company Director
The Role of a Company Secretary in the 21st Century
The Essential Guide to IFRS
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Two different interpretations of the same EU regulations

One of our clients contacted me recently to discuss the changing picture for them. They have a strong customer base in the UK and had started supplying a customer in Germany about three years ago. Business with the customer has steadily grown and some of the supplies were being made to the customer directly from a company in Spain.

Our client zero rated the supplies made to the German customer from its base in the UK leaving the customer to account for German acquisition tax.  The client did the same in respect of the supplies made by the Spanish company in accordance with the simplification rules for ‘triangular’ transactions.

Since establishing the arrangements with the Spanish supplier, our client had started to import goods from China into an agent’s warehouse based in Germany for onward delivery to the German customer.  Our client registered for VAT in Germany, accounted for import tax in Germany and charged the German customer German VAT under its German VAT registration.

A question is whether the client should still be applying the simplification rules in respect of the Spanish supplies or should they change the procedure. The answer needs careful consideration as it would be wrong to assume that the HMRC's rules on such matters would be the same as the rules in Germany.

I spoke with Alexander Altmann, Head of the German-British Chamber of Industry & Commerce’s Tax Services department, and his advice was that the simplification rules can still be applied since our client does not have a permanent establishment in Germany. However, given that our client is now also registered for VAT in Germany they do have the option of the Spanish supplier declaring an EC sale to our client’s German VAT number. If they choose this option, it would be our client who would then account for German acquisition tax and charge German VAT to the German customer.

This is very interesting because if the situation was a UK customer being supplied by a German intermediary that had a UK VAT registration then HMRC stipulates that the simplification procedure cannot be applied and the German intermediary must invoice the UK customer using its UK VAT registration. Another example of individual EU countries interpreting the same regulations differently.

VAT is a complex matter when you are involved in cross-border trade with the arrangements subject to change as your trading circumstances change.  If your company is involved in cross-border trade within the EU, I strongly recommend that you attend our live online seminar EU VAT and Cross-Border Trade which is being presented between 1.30 and 4.30 pm on 22nd February.

Stephen Smith
Managing Director,
UK Training (Worldwide) Limited


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