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EU VAT triangulation – automating determination

Simplified Triangulation – What if middleman / intermediary party has VAT number in other states? Who is responsible for transport? Triangulation still permitted?

For businesses with complex cross-border chain supplies and ‘middleman’ or intermediary parties, Triangulation is a useful simplification to reduce the numbers of foreign VAT returns. But the rules for using it vary – what if the middleman has an establishment or VAT number in the country of dispatch or arrival? And who handles the transport? It’s likely that your ERP system – or even your VAT teams – won’t be able to easily manage this and risk missed VAT.

At VAT Calc, because we’re unique in being built on EU VAT Directives and local tax law variations, we have this fully automated.  That means our tax engine, VAT Calculator, can ensure you’re using the right VAT numbers in your Triangulation transactions, and that you’re following local variations. In addition, the engine understands the rules around transport responsibility so the simplification will only apply when the necessary conditions are met.

How does Triangulation work?

Triangulation applies between three companies using VAT ID’s in three different EU Member States, involved in successive supplies, with 1 cross-border transport of goods between the first supplier and the last customer. See below.

The Middleman, in Country B, has a customer in Country C. It sources the goods from its Supplier in Country A. Ordinarily, the middleman would have to VAT register in Country C to account for VAT on the arrival of the goods from Country A and then also on the sale to the Customer in Country C. However, Triangulation, under Article 141 of EU VAT Directive, exempts the VAT on acquisition. The VAT on supply by the middleman in Country C is declared by the customer under the reverse charge mechanism per Article 197 of the VAT Directive. As such, the middleman avoids VAT registration in Country C. The middleman will, however, need to report these transactions on an EC Listing.

Transport complications for Triangulation

There is a complication on the above in the event that the Customer is responsible for the transport. Under triangulation, the transport is allocated to Invoice 1 on the supply to the Middleman (Article 36a EU VAT Directive). But if the Customer, and not the Middleman or Supplier, is responsible for the transport then this will likely invalidate the use of Triangulation.

Simplified triangulation country rules

But what happens if the Middleman is VAT registered in the country of destination. Should they use these numbers or do they use the Triangulation route?

The answer depends on the EU member states as they have varying rules. If the country does not allow Triangulation if the Middleman is registered in Country C, then the Middleman should instead use that local VAT number, charge and collect VAT. Additionally, where local rules prohibit the middleman from holding a VAT number in country A, the simplification cannot be applied.

This is despite the ECJ Case C-580/16 (Hans Bühler) judgement which permits traders to choose a VAT registration number to apply. Previously, some tax offices refused the simplified triangulation rules if B had a VAT number in the country A, the country of dispatch. Party B consequently still has to register for VAT in country C. This case means that the simplified triangulation rules can still be applied, provided that Party B ‘acquires’ the goods under a VAT number of an EU Member State other than the Member State of dispatch. Party B therefore does not have to register for VAT purposes in the EU Member State of arrival.

However, number of countries have not implemented this in their local laws.

Which countries still apply differing rules?  Our VAT Calculator tax engine includes all of these variations. As you submit your transactions to the application, and VAT registrations of parties, it will indicate the correct VAT number to use on the transaction apply and whether Triangulation simplification may be applied given the Member States’ application of the rules.  And, lastly, these are then all posted without further effort by you to the right boxes in each countries’ VAT return via our VAT Filer, built on the same application as VAT Calculator.

EU Simplified Triangulation by state

wdt_ID EU state If Middleman registered in country of dispatch? If Middleman registered in country of arrival?
1 Austria Yes No
2 Belgium Yes Yes
3 Bulgaria No No
4 Croatia No Yes
5 Cyprus No No
6 Czech Republic Yes No
7 Denmark Yes Yes
8 Estonia Yes No
9 Finland Yes Yes
10 France Yes No

 

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