EU triangulation VAT for supply chain management

Tue 24th May 2016

Supply chain management (SCM) businesses must regularly face EU VAT problems with multiple party involvement in the goods supply process. While VAT triangulation is an extensively used facility in respect of intra-EU goods supplies, it fails when an additional intermediary enters the chain.

Take the following two scenarios as examples. The first is a three-party standard and fully compliant triangulation. The second introduces an additional intermediary, resulting in triangulation breakdown.

Triangulation to avoid additional VAT registrations

First, a UK company (UK1) orders goods from a French company (F1) for direct delivery to the UK company’s German business customer (G1). F1 invoices UK1. UK1 invoices G1. F1 reports an intra-community supply. UK1 does not report an acquisition but does report the triangulation on its UK EC Sales List. G1 reports the acquisition. Full compliance.

Now, second, let us suppose UK1 contracts another UK company (UK2) to source the goods. UK2 orders goods from F1 for direct delivery to G1. F1 invoices UK2. UK2 invoices UK1. UK1 invoices G1. F1 reports an intra-EU supply, as before, but this time details UK2 on its EC Sales List. UK2 does not know what to report ! UK1 reports a triangulation on its UK EC Sales List. G1 reports the acquisition. This is not a compliant process.

The second scenario must happen frequently for businesses involved with the complexities of SCM (Supply Chain Management). One solution would be to re-arrange the commercial contracts to remove one of the intermediaries from the chain, but this is usually not practical. Alternatively, UK1 or UK2 could obtain a non-resident VAT registration in either Germany or France respectively.

Supply chain management and EU VAT

Given the potential frequency of multiple party supply chains in today’s world, fairly extensive non-compliance would not be unexpected, particularly if the transactions were only occasional. Nevertheless, the process is incorrect, and prudent SCM companies will no doubt ensure these issues are fully and compliantly administered for their clients.

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