No triangular transaction without reference to transfer of tax liability on invoice? Opinion: "Luxury Trust" (C-247/21)

Function and conditions of an intra-Community triangular transaction

In the case of an intra-Community triangular transaction (regulated in Germany by § 25b UStG – German VAT Code), three traders conclude sales for the same goods: the first supplier or the middle trader transports the goods directly from the first supplier to the last customer in the chain in another Member State, and the three traders appear under three different VAT IDs (simplified depiction). To avoid the middle trader having to register for VAT in the Member State of destination in order to declare an intra-Community acquisition and a subsequent local supply, a simpler method can be used. If the middle trader uses a VAT ID other than that of the country of departure or destination and refers to the intra-Community triangular transaction in the invoice, his intra-Community acquisition is deemed to be taxed in the country of destination and the tax liability for the local supply is transferred to the customer. A "penalty acquisition" according to § 3d S. 2 UStG is then not taxable.

Invoicing requirements

Pursuant to § 25b (2) No. 3 in conjunction with § 14a (7) UStG, the middle entrepreneur must include in the invoice a reference to the existence of an intra-Community triangular transaction and a note that the tax liability has been transferred to the last customer - this requirement is also dictated by the corresponding provisions of the VAT Directive. In practice, this is often handled “sloppily” in that the invoice includes a reference to the triangular transaction but not the transfer of the VAT liability. Several German Fiscal Courts have addressed the question of whether this is problematic, with differing results. The BFH (Federal Fiscal Court) has suspended two proceedings to await the ECJ decision in the "Luxury Trust Automobil GmbH" case.

Facts of the ECJ case

In the case of "Luxury Trust Automobil GmbH", the middle trader had not shown any VAT in the invoice and had included the reference "tax-free triangular transaction". However, there was no reference to the transfer of the VAT liability.

Advocate General: A reference to the customer’s VAT liability is mandatory

In her opinion, the Advocate General takes the view that the middle trader has a right to choose whether to make use of the simplification rule. To exercise this option, the trader must also inform the customer of the transfer of the VAT liability. Doing otherwise would increase the risk that the VAT would not be paid by anyone. This requirement is also not disproportionate.

If the reference to the transfer of VAT liability is missing, the material requirements of the intra-Community triangular transaction are not fulfilled. If an invoice is issued later with this reference, this is not considered a correction but rather the first fulfilment of the requirements. Accordingly, the issuance of this invoice cannot have any retroactive effect because, according to the general principles of VAT law, changes are only significant when they occur. The VAT Directive does not specify a time limit for this, but the national regulations on the statute of limitations must be observed. The correct invoice must be received by the recipient - this can be problematic if, for example, the company has ceased to exist in the meantime.

Consequences

The lack of retroactivity would mean that, from a German perspective, the middle trader who issued an invoice without the reference to the transfer of the VAT liability would first have to declare the intra-Community acquisition in the Member State of the VAT ID used, in accordance with § 3d S. 2 UStG. Depending on the regulations of the destination country, a local supply of goods must also be declared there. As soon as the middle trader issues a correct invoice in the sense of an intra-Community triangular transaction (with reference to the transfer of the tax liability), his/her acquisition is deemed to be taxed in the destination country in accordance with § 25b para. 3 UStG, so that the penalty acquisition taxation of § 3d S. 2 UStG also does not apply. The previous declarations would not have to be corrected due to the lack of retroactive effect. Instead, negative amounts would have to be recognised in the taxable period in which the correct invoice was issued.

It remains to be seen whether the ECJ will accept this opinion. From now on, however, middle traders in triangular transactions should make sure to include in the invoice not only a reference to the triangular transaction as such but also to the tax liability of the recipient of the supply. In the opinion of the Advocate General, however, the ECJ cannot decide whether the relevant provision of national law should be cited in this context. In the opinion of the Advocate General, this is helpful, but not mandatory. To be on the safe side, you should include this reference.