Quick fixes of the EU VAT reform 2020 (2024)

The EU will introduce a comprehensive VAT reform between 2022 and 2024. In order to provide more clarity on chain transactions, intra-Community transfers and consignment stocks by then, there will be so-called "quick fixes" as immediate measures.

What are these quick fixes?

The European Union's current VAT regulations are in fact only a temporary solution from the EU - even though they have been in place for decades. With an action plan of the Union, the so-called Quick Fixes, it now wants to meet the new requirements of international networking and digitalization - and incidentally create a simpler principle for VAT in Europe that is intended to limit abuse. In this article, we would like to show you what this means, what steps are necessary and how you can ultimately benefit from it.

Before the quick fixes for 2020, there was already a change in the law for online platforms and German retailers on January 1, 2019: since then, it is no longer the retailer itself that is liable for unpaid VAT, but the online platform. As a result, Amazon, eBay & Co. will in future require a certificate in accordance with Section 22f to prove that traders have paid VAT correctly.

The upcoming reform affects, among other things, the country of destination principle. This is to be amended to the extent that tax exemption will no longer arise in the country of origin of an intra-EU (or intra-Community) supply. Instead, VAT will be incurred in the country of the company that receives the supply. With regard to third countries, however, the current regulations remain in place.

Quick fixes as an immediate measure against misuse

The quick fixes are only a first step towards new, definitive regulations on VAT in Europe. They will come into force on January 1, 2020 in the form of immediate measures. In the years 2022 to 2024, all measures will finally take effect and the uniform laws will become legally binding.

The main purpose of the emergency measures is to prevent fraud and abuse. In particular, intra-Community trade in goods should benefit from the changes by simplifying it and making abuse more difficult.

This means that there will be many changes to the European VAT system from 2020, which will affect chain transactions, intra-Community supplies and consignment stocks, for example. I'll explain what this means in a moment.

What quick fixes will be available soon?

Below we summarize the changes of the reform for you. We would like to give you an overview of what you need to consider in your company from January 1, 2020 - so that you can

1. save on taxes,
2. can work in a legally compliant manner and
3. you can save yourself the trouble of studying the new case law yourself.

EU-wide guidelines for chain transactions

Definition: Chain transaction
In a chain transaction, not only two companies are involved in a delivery. In addition, an intermediary helps with the transportation of the goods. A chain transaction is when the same goods are delivered one after the other and transported directly from the first supplier to the last buyer.

For the first time, an EU-wide directive on the taxation of medium-sized companies will be introduced as part of the Quick Fixes. Until now, taxes have been composed differently depending on the EU member state - despite the same situation.

The situation is different if the transportation of the intermediary is for the account of the first or last trader: In this case, the dispatch of the goods is attributed to the first or last trader.

What does this mean for you and your online store?

Online retailers should review their internal procedures and processes with regard to the upcoming changes. Do internal adjustments need to be made? Do international sales have to be recalculated due to the reform?

Overall, the quick fixes are intended to make VAT processing cheaper and easier for online retailers. And those who inform themselves in good time can definitely benefit from this.

How intra-Community supplies are exempt from tax

Definition: intra-Community supply
An intra-Community supply is a cross-border supply of goods and products within the EU. This is exempt from VAT.

In future, stricter conditions will apply to the exemption of taxes on intra-Community supplies. The material conditions for the tax exemption of these supplies are supplemented as follows:

• The purchaser's VAT ID is available.
• The purchaser is registered for VAT purposes in an EU Member State other than the country in which the shipment originates.
• The VAT ID is recorded in the VIES system (also known as the VIES system).
• The delivery is correctly summarized.

If the purchaser does not have a valid VAT ID, the intra-Community supply is immediately taxable. Currently, only fines are due if the regulation is not observed. This has not yet resulted in a tax liability.

What does that mean in concrete terms?

For you as the operator of a B2B online store, this means that you now have to play it safe when querying the VAT ID. If you make a mistake here, you could be liable for tax - and therefore lose money in real terms. To ensure that all details in the summary of intra-Community supplies are correct, new internal structures and processes may be necessary - for example, to be able to use WooCommerce and German Market to make a secure and regular query of the purchaser's VAT ID.

Evidence from parties involved

In addition, according to the Quick Fixes, both parties to an intra-Community supply must provide evidence. It goes without saying that these must not contradict each other. These proofs can be of various kinds: CMR consignment notes, invoices from the freight forwarder, bills of lading or air freight invoices.

Substitute documents for proofs

However, if only one proof is available, the following documents can be used as a replacement for the second proof:

• Bank documents proving that the shipment has been paid for or an insurance policy for the shipment.
• Official documents, e.g. from a notary, confirming that the goods have arrived in the Member State of destination.
• A receipt signed by a warehouse keeper in the Member State of destination confirming the storage of the goods.

Advantages and disadvantages of the innovation

The new regulation has the following advantages and disadvantages for German companies:

A negative aspect is the increased administrative effort, as two documents or proofs will be required in future.

On the positive side, the standardization of the regulations means that it is no longer necessary to study the laws of the individual EU member states. Instead, there is a simpler, standardized solution. Tax fraud can also be counteracted and a fair market promoted.

Standardized regulations for consignment warehouses

When we look at the cross-border equipment of consignment warehouses, we come across different regulations and obligations to provide evidence across Europe.

Definition: Consignment warehouse
Consignment warehouses are warehouses that are located near (i.e. at least in the same country as) the buyer. Here, the goods remain in the seller's stock until the buyer removes them.

With the introduction of the quick fixes for VAT in 2020, a new Europe-wide directive will come into force that will prevent distortions of competition in future and provide a clearer, simpler picture of the regulations. No matter in which member state of the European Union an entrepreneur is located.

For example, there were previously unresolved questions regarding the determination of the taxable amount for an intra-Community purchase and the subsequent delivery.

What will change?

Thanks to the new laws, the supplier in the country of destination is relieved of some registration and declaration obligations. In future, intra-Community deliveries can be accepted under the following circ*mstances:

• The goods are delivered to a consignment warehouse in another Member State and from there to another trader.
• The supplier is neither established in a Member State of destination nor in the establishment of a permanent establishment there to which the products are transported.
• The supplier already knows the identity and VAT identification number of the customer.
• The supplier and the customer each have an individual register.
• The goods must be delivered to the customer within one year of being stored in the consignment warehouse.

In this case, the intra-Community supply and acquisition only take place when the goods are removed from the consignment warehouse. This makes it possible to avoid VAT registration of the first trader in the country of destination.

Assume that the goods are returned to the country of storage within a period of twelve months and the process is recorded accordingly: In this case, there is no transfer, although the requirements for this are met. This means that the deferral period between storage and retrieval of the goods is uniformly set at twelve months.

In addition, it is now possible to replace the customer with another customer - provided that this change is entered in the register and the other requirements are also met.

Ultimately, it is therefore advantageous for the parties involved to be able to act more flexibly and with legal certainty when assessing the consignment warehouse for VAT purposes.

Advantages and disadvantages of the tax reform?

Advantages

• Stricter penalties for tax fraud
• Fair competition
• Higher delivery thresholds
• Clear definition of consignment stocks and chain transactions

Disadvantages

• Administrative effort
• More control and evidence

Conclusion: Quick fixes are not yet the end

In summary, this means that the quick fixes with regard to VAT now provide clarity throughout the European Union: no more lengthy research when working with a new EU member state, no costly legal advice and a significantly reduced risk in processing.

After all, the applicable laws from Germany are known and applicable throughout Europe.

However, it is also clear that the quick fixes are only the first step in the VAT reform and not yet the end. The European Union is aiming for a completely uniform reform between 2022 and 2024. Until then, the quick fixes show the direction in which things are heading - regardless of the member state.