VATNIEU5320 - Processing of goods: goods sourced and processed in the same state
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The Principal (C) in state 2 (MS2) orders goods from a supplier (A) in state 1 (MS1). C instructs that they be delivered to processor (B) in MS1. The finished goods are then forwarded to C in MS2.
The supply of goods by A to C may be zero-rated as an intra-single market supply of goods in the normal way. C is therefore treated as making an acquisition of the goods in MS2 and will also account for the VAT due on the supply of processing services supplied by B as a reverse-charge. The other movements of goods will not produce further supplies and acquisitions.