Immediate measures with effect 1 January 2020

It’s going to be a long and rocky road towards the definitive VAT system. This has prompted the European Commission to propose four “quick fixes” designed to improve the way the VAT system functions in the meantime.

• Harmonisation of the VAT treatment applied to call-off stock arrangements
• Uniform rules on how the (tax-free) intra-EU supply of goods is determined in chain transactions
• Harmonisation of the rules on the proof of transport of goods (crucial in terms of VAT exemption for intra-EU supplies)
• Clarification that specifying the VAT ID number on the invoice is a material requirement for VAT exemption of intra-EU supplies

Given that EU member states have to implement these measures in their national VAT law by 1 January 2020, companies operating across borders in the EU must take urgent action. The Commission had originally planned to make these simplified arrangements available only to companies with the Certified Taxable Person status (CTP, see below). Contrary to what was originally intended, however, the immediate measures are no longer tied to CTP status, and are thus also open to companies which do not receive this status, as is the case, for example, for Swiss companies.

Implications of the quick fixes for Swiss companies:

• No disadvantage compared with EU-based companies
• Legal aspects, e.g. contractual amendments
• Harmonised rules on call-off stock arrangements can, depending on the circumstances, simplify matters or result in a situation where VAT registrations are no longer required
• Process of collecting evidence of transport of goods needs to be reviewed and adjusted if necessary
• Review of processes and ERP system set up

Definitive VAT system

Cross-border trade in the EU is based on a transitional system that has been in place since 1993. Until now, a lack of agreement between EU member states has prevented this system from being replaced. The system is complex and vulnerable to fraud. Introducing a definitive VAT system therefore remains one of the goals of the European Commission. In 2017, the Commission presented cornerstones for a definitive VAT system. The first step is to make supplies subject to VAT in the country of destination. The second step is to apply this principle to all services as well.

In concrete terms, the European Commission’s proposal builds on the following cornerstones (see “VAT: new developments bringing new opportunities and risks” in Disclose 27):

• Cross-border deliveries of goods from one EU state to another: the current system, with two different transactions for VAT purposes (intra-Community supply and intra-Community acquisition) will be replaced by a single transaction for VAT purposes: an intra-Union supply of goods. This will be subject to VAT at the destination at the VAT rate of the country of destination.
• In instances of ‘intra-Union supply’, basically the VAT is owed by the supplier. Unlike the present situation, this on its own will not trigger the requirement that the supplier register for VAT in the destination country. The supplier can report the VAT owed through the One Stop Shop (see below) and pay it to the tax authority in their country of residence.
• If the buyer is a Certified Taxable Person (see below), the tax liability deviates from the basic principle and VAT is settled via the reverse charge mechanism by the buyer. In this case the supplier does not bill any VAT. For buyers, this represents a certain cash flow advantage because if they are a fully taxable business, they can make an input tax deduction at the same time as reporting the VAT due.

One Stop Shop

The One Stop Shop (OSS) and Mini One Stop Shop (MOSS) are to be extended. This online portal will also be available to companies that supply goods across borders on a B2B basis. The expanded One Stop Shop will also enable input tax deductions to be made. Third-country businesses, including Swiss companies, need an intermediary to be able to use the One Stop Shop.

Certified Taxable Person (CTP)

A Certified Taxable Person is defined by the Commission as a business domiciled in the EU that can demonstrate compliance with certain criteria including regularly paying their tax, internal controls and solvency. On request they can be certified by their national tax authority, and according to the European Commission’s proposal will enjoy certain benefits as a reliable taxpayer, especially when it comes to cross-border trade. If the applicant already has Authorised Economic Operator (AEO) status for customs purposes, they are deemed to fulfil the Certified Taxable Person requirements.

Under the present proposal for the definitive VAT system, Swiss companies not based in the EU cannot benefit from the Certified Taxable Person (CTP) status and the simplified arrangements it entails. It remains to be seen whether the Swiss Federal Tax Administration will try to reach a bilateral agreement with the EU making it possible for Swiss companies to also obtain CTP status.

What are the benefits of CTP status in day-to-day business?

As customers, in the cross-border purchases of goods, companies with CTP status benefit from the fact that rather than having to pay the supplier the VAT and then reclaim it from the tax authority, they can settle the tax directly by way of the reverse charge mechanism. This is advantageous in terms of cash flow.

It’s important to note, however, that this transfer of tax liability to the purchaser is a temporary measure in the EU’s Action Plan on VAT. The goal, as part of the second step towards implementation of the definitive EU VAT system, is that the supplier will always be liable for the VAT on the cross-border supply of goods and services.

CTP status does not have any benefits for the supplier in terms of the definitive VAT system and the changes in the taxation of cross-border supplies of goods. The supplier must in each instance check the status of the customer and bill them with or without VAT as the case may be. Not having CTP status also doesn’t mean that the supplier will need more VAT registrations than if they had the status.  

Originally, the intention was for the definitive VAT system to enter into force on 1 July 2022. But there is still a lack of agreement between the EU member states on certain key points. Unanimity is required for the proposed measures to be passed. Following the election of a new European Parliament in May 2019, a new Commission will be appointed. It is expected that the new Commission will go back to the drawing board and re-evaluate all the options for implementing the basic principle that cross-border supplies of goods should be subject to VAT at destination. So it seems unrealistic to expect the new system to be in place in 2022.

E-commerce package

In 2015, new rules on the place of supply of BTE (broadcasting, telecoms and electronic) services entered into force in the EU. At the same time, the Mini One Stop Shop was set up to enable companies domiciled in the EU to settle the VAT on these services. The idea of the new e-commerce package is to apply this principle to all goods and services sold online across borders to private customers. In the future, registration in a single EU member state will be sufficient (OSS). Some EUR 5 billion of the VAT gap is attributable to unpaid VAT on e-commerce supplies. The e-commerce package is designed, among other things, to ensure this money benefits the budgets of EU member states.

Since 1 January 2019, simplified arrangements have already been put in place for small enterprises related to the place of supply, invoicing rules and proof for determining the final consumer’s country of residence. Further measures which will necessitate adaptations to IT systems and thus require a longer lead time will take effect from 1 January 2021:

• Extension of the scope of the MOSS to other services (the MOSS will evolve into an OSS).
• Opening the OSS to distance sales within the EU.
• Opening the OSS to supplies of goods from non-EU countries to consumers in the EU: The import tax exemption on low-value goods not exceeding EUR 22 will be abolished. This will mean that small consignments are also subject to VAT in the EU. A full customs declaration will then have to be made for excise goods and goods with a value of more than EUR 150. Companies that import goods up to the value of EUR 150 from third countries (including Switzerland) into the EU should now be able to choose whether they want to handle taxes via an import OSS (in this case they’ll need an intermediary in the EU) or a simplified customs procedure (for example via the postal or courier service).
• In certain situations, operators of electronic interfaces such as a marketplace or platform will be treated as though they had bought goods ordered by the final consumer via the marketplace from the supplier (B2B supply) and sold them to the final consumer (B2C supply). These rules apply to the importing of goods with a value not exceeding EUR 150 to the EU from a non-EU country, as well as to distance sales within the EU by a non-EU-based supplier (for example, goods of a Swiss business shipped to final consumers from a warehouse in the EU). The operator of the marketplace or platform must settle the VAT for the supply to the final consumer at the tax rate applicable at destination. Here too an import OSS can relieve the administrative burden. Even so, this rule will mean massive changes for both companies selling via platforms and platform operators themselves.

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