VATNIEU5250 - Triangulation: other chain transactions
Introduction
A chain transaction occurs where there area number of businesses successively buying and selling the same goods ,but the goods themselves are transported directly from the original supplier and delivered to the final purchaser.
There is no limit to the number of businesses that can be in the chain, but it must consist of at least 3 businesses which include the:
- original seller
- original buyer
- final buyer who purchases the goods
Where the goods supplied by the original seller are transported from one member state and delivered to the final customer in another member state there must be anintra-single market supply. The Court of Justice of the EU has ruled that only one transaction in a chain can be treated as the intra-single market supply. In a simple chain consisting of 3 businesses, this could be either the:
- supply by the original seller to the original buyer
- onward supply by the original buyer to the final purchaser
Chain transaction rules set out how to determine which supply is to be treated as the intra-community supply. The principle holds good for a chain of any length, irrespective of the number of intermediary buyers.
The rules do not affect chain transactions that do not involve an intra-single market supply of the goods. In those cases, normal VAT accounting rules will apply where the goods are located.
Overview
The rules are set out in part 4A of the Value Added Tax (Place of Supply of Goods) Order 2004 (SI 2004/3148) (the Order).The rules require the goods to be shipped directly from the first supplier in the chain to the final customer in the chain and either dispatched from oracquiredinto Northern Ireland.The goods can be subject to further supplies, but they will be outside the chain and accounted for under the normal rules.
Article 19 of the Order.
Article 20 applies where the same goods:
(a) are supplied successively through a chain, and
(b) are dispatched or transported either:
(i) from a memberstate to Northern Ireland directly from the first supplier in the chain to the last customer in the chain, or
(ii) from Northern Ireland to a member state directly from the first supplier in the chain to the last customer in the chain.
The order refers to the cross-border supply as the “NI-EU supply”.All supplies leading up to and including the NI-EU supply are to be treated as taking place in the country of origin and all subsequent supplies are to be treated as being made in the country of destination.The businesses involved may not be established or have a fixed establishment in either the country of origin or the country of destination, but the normal VAT registration rules and reporting requirements will apply to the supplies made by the parties where the supplies are deemed to take place.
Article 20 of the Order.
Where this article applies:
(a) the NI-EU supply is to be treated as the supply that involves the removal of the goods from or to Northern Ireland; and
(b) all supplies made after the NI-EU supply are to be treated as supplied:
(i) outside the United Kingdom in the case of goods removed or to be removed from Northern Ireland to a customer in a member state.
(ii) within the United Kingdom in the case of goods removed or to be removed from a memberstate to a customer in Northern Ireland.
Intermediary operator
This legislation defines an intermediary operator as the business in the chain that transports or arranges for the transport of the goods across the EU border.
Article 23 of the order.
“Intermediary operator” means a supplier within the chain other than the first supplier in the chain who dispatches or transports the goods either itself or through a third party acting on its behalf.
The intermediary operator cannot be the original supplier. Where the original supplier arranges the cross-border transport, then the normal rules for accounting for intra-community supplies of goods will apply.
Where the final customer arranges for the transport of the goods to itself, the rules will apply and the final customer can be seen as an intermediary operator for the purposes of applying them.
NI-EU supply
The intra-community supply isdeemedto be the supply to the intermediary operator unless the intermediary operator has a “relevant VAT identification number”.That is, they are VAT registered in the country the goods are shipped from.
Article 22 of the Order
The “relevant VAT identification number” means:
(a) where the goods are dispatched or transported from a member state, the VAT identification number issued to I by that memberstate.
(b) where the goods are dispatched or transported from Northern Ireland, the VAT identification number issued toIby the United Kingdom along with an NI VAT identifier.
If so, then the intermediary operator can opt to treat the onward supply made by it as the NI-EU supply.
If the intermediary operator supplies its VAT number to itssupplier,then the supply to the intermediary operator will be a normal business to business supply in the country of origin.
Article 21 of the Order.
The “NI-EU supply” is:
(a) the supply in the chain that is made to the intermediary operator (“I”), or
(b) where I has provided its supplier with the relevant VAT identification number issued toI, the supply in the chain that is made by I.