The wording of the EU Directive 2018/1910, effective since 1 January 2020, suggests that EU suppliers must check that other businesses they are trading with within the EU are properly VAT registered. The Directive has triggered concerns about the obligation and the timing of when these checks must be done.
What is VIES?
VIES, the VAT Information Exchange System, is an online service set up to enable suppliers to check if their buyers are registered taxpayers and hold a valid VAT number in another Member State. Generally, intra-EU transactions are exempt from VAT in the Member State of dispatch when the exchange is within the EU.
For VAT exemption applications in intra-EU supplies, the Court of Justice of the European Union (CJEU) has historically been flexible about formal requirements established by national laws, such as being listed in the VIES platform.1 In practice, before the EU Directive 2018/1910 and under the CJEU precedents, exemptions have been granted to companies even when buyers weren’t VIES registered. The check of the buyer’s VAT number was less important and tax authorities granted exemptions if the supplier could prove that the material conditions of the exemption were met.
This scenario, combined with an increase in fraud in intra-EU transactions, led the EU Member States to update the VAT Directive. Their aim was to make adding the buyer’s VAT identification in the VIES “a substantive condition for the application of exemption rather than a formal requirement”.2 It follows from the preamble of the Directive 2018/1910 that the “VIES listing is (…) a key element in the fight against fraud in the Union” and, for that reason, “Member States should ensure that, where the supplier does not comply with his VIES listing obligations, the exemption should not apply”.
The idea of the preamble to the Directive 2018/1910 is reflected in its rules. According to the amendment, exemptions will be granted as long as the buyer has a VAT identification in a Member State other than the Member State where the dispatch of goods began, has indicated its VAT identification to the supplier and that the “correct information” is provided by the supplier in the recapitulative statement.3
Validating VAT numbers of foreign buyers
Although the VAT number listing in VIES is deemed to be a “substantive requirement” for the exemption of intra-EU supply of goods, the VIES validation is not an explicit requirement from the new Directive. However, if an implicit requirement is thought to exist, the timing of when these checks must be performed is unclear. In our opinion, the denial of the exemption is associated with the accuracy of the data submitted in the recapitulative statement which contains data from transactions already performed and likely invoiced. If the recapitulative statement must reconcile with data of existing invoices, any VIES checks should logically be performed at the time of invoicing and not during the submission of the recapitulative statement. Otherwise, there is a risk of a discrepancy between the data of the invoices and the data reported in the statement. Either way a requirement associated with validating the VAT numbers at the time of reporting makes little sense if the report only captures transaction data that the supplier has already carried out.
It’s also unclear if the elevation of the buyer’s VAT number listing in VIES from a formal to a substantive requirement will be enough for the CJEU to overrule its precedents. The same Directive 2018/1910 states that the exemption will be denied if the supplier doesn’t submit the recapitulative statement with the correct information, “unless the supplier can duly justify his shortcoming to the satisfaction of the competent authorities”.4 Apparently, tax authorities will have little room to deny the exemption if the supplier can prove the fulfillment of the other conditions of the benefit.
Whether this amendment does indeed create new invoicing requirements and whether the CJEU will overrule its precedent are questions that are being raised. However, until real cases pop up and are brought before the Court, the answer to these questions will be speculative.
1 CJEU:C-21/16 Euro Tyre Case
2 Council Directive (EU) 2018/1910. Preamble (7)
3 Council Directive (EU) 2018/1910. Article 1(3); amendment to Article 138 of the VAT Directive
4 Council Directive (EU) 2018/1910. Article 1(3); amendment to Article 138 of the VAT Directive.
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