Quick Fix 4: Administration of the VAT identification number

Some time ago, the EU Commission has proposed several reforms of the VAT system that are aimed at improving and modernizing the levy of VAT. The central element of the proposal consists of a new system for the levy of VAT on cross-border intra-Community supplies of goods. Even though the proposal is still pending, the EU legislator has already adopted four measures which are meant to improve the current system. These so-called ‘Quick Fixes’ become effective as of January 1, 2020. In this article, we discuss the fourth Quick Fix, which relates to the obligation to obtain and document VAT identification numbers of customers.

Background

On the basis of the current rules, a supplier who makes an intra-Community supply of goods is required to report the VAT identification number of his customer in the so-called EC Sales List (VIES listing/recapitulative statement), as well as on his invoices.

Based on case law of the European Court of Justice, having and reporting the VAT identification number of the customer is not a material requirement for applying the VAT exemption (zero-rate) for intra-Community supplies of goods. The application of the exemption cannot be refused based on the mere fact that the supplier did not have the valid VAT identification number of the customer.

New rules: Quick Fix relating to the VAT identification number

The fourth quick fix will change the current state of affairs. As of January 1, 2020, obtaining a valid VAT identification number of the customer in case of intra-Community supplies will become a material requirement for the application of the VAT exemption (zero-rate). Additionally, reporting the intra-Community supply of goods in the EC Sales List will also become a material requirement, unless the supplier is acting in good faith and can justify any shortcoming in this respect.

How can you prepare your business for the Quick Fix?

As of January 1, 2020, businesses carrying out intra-Community supplies of goods should more than ever make sure that the valid VAT identification numbers of their customers are documented in their administrations. The ERP master data should be fully up to date, and we recommend businesses to regularly validate the VAT identification numbers on the website of the European Commission (i.e. the VAT Information Exchange System (VIES)). Additionally, businesses must make sure that the valid VAT identification number of the customers is mentioned on the invoices that are issued regarding intra-Community supplies of goods.

Even though the Quick Fix follows from EU law, Member States may implement or interpret the new rules differently. Do you have questions as regards this Quick Fix? In that case, please contact Marisa Hut or Jayant Rakhan from the VAT & Customs Advisory team.