Simplified triangulation scheme does not apply if specific statement on invoice is missing
On 8 December 2022, the ECJ ruled in the Luxury Trust Automobil GmbH case that Party B can only apply the simplified triangulation scheme in cross-border supply chains of goods, if the invoices issued by Party B to Party C state that the reverse charge mechanism applies. Failure to include this statement on the invoice, cannot be corrected (retrospectively) by issuing a new invoice with the correct statement. If Party B does not state that the reverse charge mechanism applies on its invoice, the triangulation scheme cannot be applied, which increases the VAT-compliance burden for Party B in cross-border chain supplies.
The Luxury Trust Automobil GmbH case is important for suppliers that are part of a chain in which goods are supplied cross-border within the EU.
Simplified triangulation scheme
The simplified triangulation scheme can be applied in case of a chain of two subsequent supplies of goods, whereby the goods are transported cross-border within the EU directly from the first supplier (Party A) to the last customer in the chain (Party C). An important prerequisite is that Party B may not be established or have a VAT number in the EU member state of arrival of the goods.
Under the simplified triangulation scheme, Party B does not have to declare an intra-Community acquisition of the goods in the EU member state of arrival and a (possible) subsequent domestic supply in that EU member state to Party C. Therefore, Party B does not have to register for VAT purposes or file VAT returns in the EU member state of arrival. The VAT obligations of Party B in EU member state C are transferred to Party C under the simplified triangulation scheme.
Practical implications
From the ECJ ruling it follows that for the simplified triangulation scheme to apply it is mandatory that Party B states on the invoice that the triangulation scheme is applied. If Party B does not state that the reverse charge mechanism applies on its (initial) invoice, the simplified triangulation scheme cannot be applied and this failure cannot be corrected retrospectively by issuing a new invoice with the correct statement.
Not being able to apply the simplified triangulation scheme increases the VAT-compliance burden for Party B. In the absence of a reference to the reverse charge mechanism on its invoice, Party B is required to register itself in the EU member state of arrival of the goods. In that EU member state, Party B has to report an intra-Community acquisition and (possibly) a subsequent local supply to Party C.
Further, Party B is deemed to perform an intra-Community acquisition in the EU member state of which it used the VAT number when purchasing the goods from Party A. The VAT on this deemed intra-Community acquisition can be refunded/avoided if Party B declares an intra-Community acquisition in EU member state C, being the country to which the goods were transported.
Action points practice
The stricter approach when assessing if all conditions for a specific VAT-regime are met is not only encountered in respect of the simplified triangulation scheme. For instance, the 0% VAT rate/VAT exemption for intra-Community supplies of goods is also subject to formal conditions, failure of which result in the 0% VAT rate not being applicable. Parties involved in cross-border supplies of goods should assess their flows of goods and all conditions linked to the VAT treatment of those flows. Naturally, we are happy to assist you with this assessment. Also in the situation where conditions have not been met in the past.
Questions? Feel free to contact a member of our Indirect Tax practice group.