Quick fix on Call-off stock

The EU will harmonize VAT rules on four key areas of international trade. Most businesses involved in intra-Community trade should review and take action from these changes. This article is part of a series of Marosa articles about the changes announced.

In January 2020, four changes will be introduced at EU level to simplify and provide legal certainty over VAT rules on international trade.

• EU wide simplification on consignment stock. A harmonized simplified regime will apply.
• More importance of customer's EU VAT number. It will become a material requirement for zero-rated intra-Community supplies.
• Simpler proofs on intra-Community supplies. Less and more flexible record keeping.
• Uniform rules on chain transactions. Additional guidance on where to allocate the intra-Community transaction in chain transactions.

This article covers the call-off or consignment stock simplification in 2020. At the end of the article, you can find links to each of the three remaining quick fixes.

What is call-off stock?

To reduce delivery times, businesses often place their products in a warehouse near their client. In practice, the supplier moves the stock to a location near the customer, so that a supply is made quicker as and when required by the client. Very often, the supplier stores his or her own goods at the client's warehouse, so they can access it directly from its own premises. When the supplier stores the goods in his own facility, we refer to consignment stock. When the supplier stores the goods in the client´s premises, we refer to call-off stock.

Despite the reference to "call-off stock" in the EU documentation on the Quick fixes, there is no requirement for having the stock at the client's premises for the 2020 changes to apply.

What are the current rules?

In a cross-border scenario, where the supplier and the buyer are in different EU countries, such arrangement would be considered a deemed intra-Community supply in the country of dispatch and deemed intra-Community acquisition in the country of arrival of the goods. Once registered, the supplier would a report an intra-Community acquisition followed by a local sale in the country of arrival.

Today, the general rules require a VAT registration of the supplier in the country of arrival of the goods. There are many simplifications in place that have been introduced individually by each country. These simplifications would cancel the need to register, but different requirements apply in each country. The EU has now unified these requirements into a consistent, EU wide, call-off stock simplification.

What has changed?

As of 1 January 2020, the following changes are introduced:

• No intra-Community supply and intra-Community acquisition take place at the time of dispatch or transport of the goods into a location in another Member State
• A zero-rated intra-Community supply in the country of dispatch and an intra-Community acquisition in the country of arrival takes place when the acquirer takes ownership of the goods.

In practice, this means that the supplier would avoid a VAT registration in the client's country. This simplification will apply in all 28 EU Member States. Several conditions must be met for this simplification to apply:

• The final client must be known by the supplier. It would not work for an intended or not confirmed client.
• The goods cannot be held in the destination country for more than a year.
• The supplier must keep a separate record of all shipments and transports made under this arrangement.
• The supplier must report the movement (transport) in the ECSL of his or her home country indicating the VAT number of the client. The value would not be included.
• Both the supplier and the customer are taxable persons registered for VAT purposes. Also, the supplier cannot be established or have a fixed establishment in the destination country.

There are some open questions about this regime for which we are expecting guidelines published in the coming months. For example, since the supplier cannot have a fixed establishment in the destination country, would the conditions be met if this supplier owns or rents a warehouse in that country? We also expect ECSL forms to be updated in order to allow entries without monetary value.

If you want to know more about this simplification, you can read the VAT expert Group´s opinion on Call-off stock simplification and the section 3.1 of VAT committee minutes on their meeting on 3 June 2019. You can also read the VAT Committee working paper about this matter.

The other 3 quick fixes

You can find more information about the remaining EU changes as from 2020 in our dedicated articles about each change:

• Customer's VAT number on intra-Community supply. Revised importance.
• VAT treatment of chain transactions. New rules to allocate the transport.
• Documents to be kept for intra-Community supplies after 2020

Confused about any of the quick fixes? Contact Marosa today and let's discuss how these changes could impact your business.