EU opinion on place of supply of unfinished intra-community supplies

Sat 26th Jul 2014

The Advocate General has helped to clarify the place of supply rules for goods which have been dispatched across and EU border for final processing prior to the final supply.

Intra-community supplies and processing

Generally, when goods are sold across EU borders, an intra-community sale, the place of supply, and therefore VAT rates and rules applicable, is the destination state.  There is however a simplification process under the EU VAT Directive, using the reverse charge, which enables the VAT reporting to be carried out by the customer so that the vendor does not have to VAT register in the destination state.

However, there has been some doubt about the situation where the goods are transported across an EU border but undergo further processing or finishing prior to delivery to the customer.

The Advocate General, part of the European Court of Justice regime, has now suggested in a case referred by France that the supply is only carried out when the goods are in a finished state.  This means it would be a domestic supply instead of an intra-community supply.  This has important implications since in many countries, e.g. Germany, this would trigger a potential requirement to VAT register the vendor as a non-resident trader.