In intra-EU supplies of goods, transactions often involve participants acting as both sellers and purchasers in the same transaction, while the product concerned is delivered only once, directly from the first seller to the last buyer.
These are known as chain transactions, whereas triangular transactions are actually three-party chain transactions, since it is true that more than one sale takes place between the parties in such a way that the product goes directly from the first seller to the final purchaser.
In the case of these transactions, it is particularly important to examine the tax obligations of each participant, since typically the participants are interested in exempt sales, whereas only one sale can be exempt in the case of such transactions. The tax authority also likes to investigate these transactions, because through the exchange of information within the European Union, they can effectively detect possible taxpayer errors, which are typically heavily sanctioned.
- Triangular and chain transaction
In chain transactions, the sale of goods can take place in many ways and the goods can come through several countries, from outside the EU, but also from within the EU. It may be transported by the purchaser, the seller and, where appropriate, by the intermediary. It should also be noted that a triangular transaction under the VAT system is not an official definition but is referred to in technical jargon. It is more correct to call this case the so-called triangular transactional simplification, since the VAT system allows simplifying provisions to be applied for administrative facilitation purposes in relation to chain transactions involving three parties.
In connection with such transactions, the place of supply for VAT purposes must be determined first. It is important, however, that the provisions on triangular transactions always approach the transaction from the purchasing side, from the point of view of the final purchaser (i.e. party C), since the essence of the rules on triangular transactions is an administrative simplification designed to ensure that, under certain conditions, an intermediate participant B does not have to register for VAT purposes in Member State C, despite the fact that in Member State C it makes a domestic supply of goods.
Let's see the details.
- Chain transaction
In the case of chain sales, it is important to determine the participant who carries out the supply with a direct result of which the goods are delivered, since only this sale can be exempt in a chain transaction. The place of supply shall be the place where transport of the goods began. The place of supply prior to this shall also be the place where the goods were at the time when transport began. The place of subsequent supplies shall be the place of destination of the transport.
On the basis of the above, if the product is located in the territory of the country, all sales involving the transport of the product or preceding such sale are treated as a domestic supply.
Where the transport is destined for the territory of another Member State or third country, the place of supply is abroad of the sales following the sale involving the transport. Mutatis mutandis only supplies which directly result in the goods being transported to the territory of another Member State or to a third country may be exempted from tax.
Therefore, only one supply of goods forming the basis of a chain transaction can be exempt since, despite multiple supplies, the goods are transported only once.
- Triangular transaction
The first and indispensable condition for simplification of a triangular transaction is that the three parties involved in the transaction should be taxable persons registered in three different Member States and holding a VAT number, given that the simplification rules are based on Directive 2006/112/EC on the common system of value added tax ('VAT Directive').
With regard to the intermediary in a triangular transaction, the following conditions must be fulfilled in order for simplification to apply.
(a) the person acquiring the goods is not established within the territory of the country but is registered as a taxable person in another Member State;
(b) the acquisition of the goods is necessary for the subsequent supply of goods within the territory of the country by the taxable person referred to in (a);
(c) the transport of the goods begins in a Member State other than the Member State in which the customer is registered as a taxable person;
(d) the supply of goods referred to in point (b) is to a taxable person registered by the State tax authority for VAT purposes.
In that case, the customer referred to in (d) shall be regarded as liable for payment of VAT in respect of the supply carried out by a taxable person who is not established in the Member State in which the tax is due.
According to the provision, therefore, it is not an obstacle if one of the three actors does not belong to the European Union as regards its place of residence, but is registered in a Member State, i.e. has a VAT number.
The simplification for triangular transactions therefore consists in the fact that where an intermediary (B) in a triangular transaction makes an intra-Community acquisition of goods but is not established in the Member State where the place of the intra-Community acquisition of goods is situated (place of destination of the goods), but its customer ('C') is a taxable person registered in that Member State, the intermediary (actor 'B') is exempted from registration in the Member State of destination of the goods purchase and VAT, provided that the customer ("C") is obliged to pay tax on the supply of goods.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
