The case of the Court of Justice of the EU amends the current practice in triangular trade

In 2014, the Austrian company Luxury Trust Automobil (hereinafter as the ‘Intermediary') purchased vehicles from a supplier established in the United Kingdom and sold them to customer from the Czech Republic. The vehicles were transported directly from the United Kingdom to the Czech Republic and all participants acted under the VAT number of their country of establishment. The Intermediary decided to apply the triangular trade regime to this transaction and issued an invoice without VAT, stating the reference ‘Exempt intra-Community triangular transaction’. However, it did not refer to the fact that the VAT liability in the Czech Republic is transferred to the customer, or the commonly-used reference ‘Reverse charge’ (or ‘dan odvede zakaznik’ according to the language mutation of the invoice).

According to the CJEU, a triangular transaction is a voluntary regime that an intermediary decides to use at the time the transaction is realized and manifests his will by actively transferring the VAT liability to the final customer, since only in this way can the final customer be certain of the chosen VAT regime and his possible VAT liability. In this logic, the CJEU stated in its decision that an invoice must contain the note ‘Reverse charge’ when using a triangular regime. If the intermediary does not indicate this on the invoice, the triangular transaction is not deemed to have been carried out and the intermediary must register for VAT in the destination EU Member State. Even a supplementary correction of the invoice cannot remedy this fact. The reference on the invoice is therefore not merely a formality, as has been perceived so far, but a necessary condition for the application of the triangular simplification at all.

From experience, we know that complex cross-border transactions are often only subsequently treated from the VAT perspective in order to eliminate negative VAT effects. The above decision has a major impact on the current practice, where the correcting of invoices and VAT reports retroactively achieves the use of a triangular regime. Now it will no longer be possible to do this and the intermediary will not be able to avoid registering for VAT in the destination country.

At the same time, we highly recommend reviewing the invoice requirements, where companies in the position of an intermediary or final customer currently use triangular simplification regime.

If you have any questions with regard to the above or are interested in reviewing your current set-up, our team is fully at your disposal.

Authors:

Štěpánka Šťastná, Tax Senior
Petra Slobodzianová, Tax Manager