EU VAT number for intra-community VAT

Tue 3rd May 2016

The European Court of Justice’s Advocate General (AG) has opined that a valid EU VAT number may not be required to qualify for VAT zero-rating on an intra-community supply.

Whilst the AG’s opinion is not binding, it does give serious weight to the position. This will be a set back for the German tax authorities which had been attempting to increase the burden of proof on the vendor on intra-community zero-rating to help prevent VAT fraud – estimated to cost EU member states €50 billion per annum.

Zero rating on intra-community supplies

Under the EU VAT Directive, B2B sales of goods across EU VAT borders is VAT zero-rated. This simplification avoids the vendor being required to VAT register in the country of its customer under the EU’s current destination-principle VAT system.

Instead, the customer records the arrival of the goods for VAT as a cashflow neutral sale and purchase – a process known as the ‘reverse charge’.

To benefit from this relief, it is generally accepted that the purchaser must provide a valid EU VAT number (to prove they are a business, and not a taxable consumer) that can be verified by the vendor on the EU’s online VIES database. A vendor should also obtain proof that the goods left their country, typical supporting transport documentation, and there was a genuine intra-community dispatch (export) of the goods.

AG challenges valid VAT number requirement

In a recent German case, the AG has challenged the requirement for a valid VAT number. A German vendor sold a car to a Spanish business customer. The German vendor used a valid consignment note and invoice as proof of the zero-rated VAT supply. The purchaser did not provide a valid EU VAT number.

The German tax authorities raised an output (sales) VAT assessment on the German vendor on the basis that it did not obtain a valid VAT number from its customer.

The issue was referred to the AG to clarify the position if the tax authorities could deny VAT relief if the vendor has not taken all reasonable steps on recording a valid VAT number, but there is no evidence of VAT fraud and there is evidence of the movement of the goods across an EU border.

The AG on 6 April 2016 stated that the right to VAT zero-rating cannot be withheld by the tax authorities only on the basis of not recording a valid VAT number if “in circumstances where there is no serious indication suggesting that fraud exists, where the goods have been transferred to a destination in another Member State, and where the other conditions for relief have satisfied.”