Simplified triangular transaction rule brought in line with EU jurisprudence

Effective 2 September 2023, the Dutch Secretary of Finance withdrew its policy regarding the application of the VAT simplified triangular transaction (STT) rule in chain transactions in order to bring Dutch practice in line with jurisprudence of the Court of Justice of the European Union (CJEU). 

Overview of VAT treatment of chain transactions

A chain transaction (often referred to as an “ABC transaction”) involves at least three traders registered for VAT purposes in different EU member states and two successive supplies of the same goods, in which the goods are first sold by A to B and then by B to C and transported directly to the final customer by one of the parties in the chain. Even though there is only one movement of goods, each link in the chain constitutes a supply of goods for VAT purposes, but only one of the supplies, i.e., the supply where the party arranging the transport is involved, qualifies as an intra-Community supply and thus can benefit from the VAT exemption for such supplies. The other supplies are domestic supplies subject to local VAT either in the EU member state of dispatch or the member state where the transport of the goods ends. However, if the intermediary (i.e., B) transports the goods, it is involved in two transactions, i.e., A to B and B to C so the question arises as to which transaction qualifies as an intra-Community transaction.

The STT rule can apply to reduce the administrative and compliance burdens on the traders provided all three are registered for VAT in the EU. The simplification rule allows B, who does not have a place of business in the country of destination of the goods (i.e., country C) to avoid having to register as a VAT taxable person in country C. Instead, trader C must pay VAT on the sale of the goods by B if C is a VAT-registered person in the country where the transport of the goods ends. 

Change of course

The CJEU issued a decision on chain transactions on 8 December 2022, concluding that the STT rule can be applied only if B indicates on the invoice to C that VAT is reverse charged to C (for prior coverage, see the article dated 13 January 2023). 

Under Dutch policy that applied until 1 September 2023, B only had to indicate on the VAT invoice that the supply was an ‘intra-Community supply’ (“intracommunautaire levering”) for the STT scheme to apply. Now that policy has ended, VAT entrepreneurs must adhere to the principles of the CJEU decision, i.e., B must indicate on the invoice that the reverse charge applies.

Relevance in practice

If you are B in an ABC transaction and are applying the STT rule, make sure that the reference to the reverse charge is included on the invoice. If you fail to mention that VAT is reverse charged to C, the STT rule cannot be applied. As a result, you will have to register in the Member State of arrival of the goods to declare an intra-Community acquisition and a subsequent domestic supply. A number acquisition must also be declared in the Netherlands if the Dutch VAT number is used, and you run the risk of retrospective taxation and fines.

More information?

Are you involved in chain transactions and have questions about the potential impact of the withdrawal of the approval? Please contact us if you have any questions or would like to discuss the implications of the decision on your business in greater detail.