A recent preliminary ruling request to the European Court of Justice, Case C-664/21, NEC PLUS ULTRA COSMETICS, has re-emphasised the importance of collecting documentation when carrying out a zero-rated supply in the EU. The 2017 NEC PLUS ULTRA COSMETICS case involved a company established in Switzerland selling cosmetics products under the Ex Works clause from their warehouse in Slovenia to business customers established in Romania and Croatia. Ex Works (EXW) is an Incoterms rule, a set of definitions outlining the responsibilities of buyers and sellers in international transactions. With Ex Works the transport obligations, costs and risks are the buyer’s responsibility.
The tax administration of the Republic of Slovenia inspected NEC PLUS ULTRA COSMETICS and requested evidence and supporting documentation relating to these supplies to verify that goods had been transported to another EU Member State.
NEC PLUS ULTRA COSMETICS provided copies of the invoices and of the ‘Convention relative au contrat de transport international de marchansises par route’ (CMR) consignment notes. The company failed to provide the evidence requested by tax officers to prove the right to tax exempt the supplies to their customers (delivery notes and other documents mentioned in the CMRs).
The company clarified that the reason for the late submission was that the Hamburg office responsible for supplies to Croatia ceased its activities in August 2018, making it more difficult to find the documents asked for by the tax officers.
Consequently, the Slovenian tax authorities provided the company with an additional VAT assessment notice and ordered it to pay the relevant amount.
What documents do you need to keep for supplies carried out after 2020?
In the implementation of the Quick Fix related to the proof of transport in 2020, the European Commission has clarified that where the supplier arranges transportation of the goods, it must be in possession of either:
- At least two non-contradictory items of evidence from two sources independent of each other and of the supplier and of the acquirer in what HMRC neatly describes as List A, below, or
- A single item from List A and a single item from List B, below, again from non-contradictory and independent sources:
- Signed CMR document or note
- Airfreight invoice
- Invoice from the carrier of the goods
- Bill of lading
- An insurance policy for the transport of the goods
- Bank document proving payment for the transport of the goods
- Official documents issued by a public authority, such as a notary, confirming the arrival of the goods in the Member State of destination
- Warehouse keeper’s receipt confirming storage of goods in the Member State of destination
If the acquirer is responsible for transport of goods (i.e. under the Ex Works clause), they must provide the vendor with a written statement by the 10th of the month following the date of supply that the goods have been transported by the acquirer or on the acquirer’s behalf. The written statement must include the following:
- Date of issue
- Name and address of the acquirer
- Date and place of the arrival of the goods as well as the Member State of destination
- Quantity and nature of the goods
- Where it is a means of transport, its identification number
- Identification of the individual accepting the goods on behalf of the acquirer.
How to ensure VAT compliance
In the case of the Ex Works clause:
- Agree in the contract/purchase order that your customer is required to provide you with all required documents within an internal scheduled deadline; and
- Keep this documentation according to the Statute of Limitation of each EU Member State where you trade.
If you don’t feel reassured by your customer, change the agreement and Incoterms clause before the supply takes place.
Need help with VAT compliance?
Still have questions about VAT exempt supplies and the Incoterms Ex Works clause? Speak to our tax experts.