Tax Partner at RSM Poland
This post continues a series on quick fixes. After a general introduction presented in part 1, now it is time to discuss one of the proposed ad hoc improvements of the VAT system that is about transferring goods under call-off stock arrangements (hereinafter: call-off stock). Council Directive (EU) 2018/1920 (hereinafter: Directive) introduces uniform principles in this respect. What is more, as of 2020, provisions of Council Regulation 2018/1909 concerning the exchange of information for the purpose of monitoring the correct application of these arrangements in the entire EU (hereinafter: Regulation) will be in force.
Definition of call-off stock
From the VAT point of view, call-of stock refers to a situation in which:
- at the time of the transport of the goods to another Member State, the supplier already knows who the acquirer is (he knows the identity and tax status of the acquirer),
- transported goods are not collected directly by the recipient, because:
- they first reach call-off stock located in a Member State of arrival of the goods,
- from there, at a convenient time (i.e. when they are needed for further re-sale, production or service performance), they are collected by the acquirer.
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Application of call-off stock arrangements
According to the domestic legislation, the call-off stock procedure is already in use in Poland. In line with the regulations set forth in the Directive, the tax liability on ICS for the vendor and on ICA for the acquirer arises on the date of transfer of the right to dispose of the goods as the owner from the vendor to the acquirer. The Polish legislator has already provided for such an arrangement, i.e. shifting the time of recognising the tax liability on ICS until the goods are collected from the call-off stock, in the VAT Act.
However, the Polish regulations (earlier in force) allow for this simplified procedure to be used only for goods used for production or service performance (trade is excluded in this procedure). What it means is that e.g. distributors now cannot apply this convenient solution for the transfer of the goods that would be later sold by their acquirer. Once quick fixes enter into force, this limitation will be abolished. At the same time, it will be possible to use call-off stock arrangements for the transfer of the goods in all of the European Union. Until now, this was possible only when the Member State of the contractor had the same call-off stock regulations in place: therefore, given the optional nature of this special solution, you had to check each and every time if such a procedure was also in place in other Member States.
Without this procedure, the vendor of the goods accounts for:
- intra-Community supply (ICS) in the country of departure of the goods, and
- intra-Community acquisition (ICA) in the country of destination of the goods, and then
- domestic supply, applying a VAT rate relevant for a given type of goods in the country of destination of the goods.
In practice, this means that the supplier must register for VAT purposes in the Member State of destination.
The amended EU regulations will offer simplified treatment of these quite complex settlements. The transfer of the goods to another Member State under call-off stock arrangements will no longer be considered the domestic supply of goods in the country of destination. Thus, under the new regulations, entities that choose this procedure can avoid splitting a single transaction into two separate ones only for the sake of tax purposes.
The acquirer of the goods will be obliged to account for ICA, and the vendor will be exempt from the obligation to register for VAT purposes in an EU Member State other than his own. Furthermore, the amendment of EU regulations provides for a uniform procedure of establishing call-off stock in every Member State so that the goods that are in stock can be used for trading, which is currently not allowed under the VAT Act.
Conditions for the application of call-off stock arrangements
The transfer of the goods to call-off stock shall be deemed to occur once the following conditions are met:
- the goods are dispatched or transported by the vendor or by a third party to another Member State with a view to these goods being supplied to the acquirer,
- the taxable person dispatching or transporting the goods has not established their business nor has a fixed establishment in the Member State to which the goods are dispatched or transported,
- the acquirer of the goods is identified for VAT purposes in the Member State of destination of the goods, and the person dispatching or transporting the goods can identify both this number and the acquirer of the goods,
- the taxable person dispatching or transporting the goods records the transfer of the goods in a special register and includes the identity of the acquirer and the VAT identification number assigned to him in the Member State of the destination; the supplier records the transfer of the goods in a relevant register, and includes the aforementioned VAT identification number and the identity of the taxable person in the VAT-EU recapitulative statement.
Call-off stock arrangements: what are the implications?
The introduction of uniform regulations in the entire European Union means that transferring goods under call-off stock arrangements will be subject to the same rules and principles in every Member State.
The entity transferring the goods under this procedure shall keep a register to allow tax authorities to verify transactions that have been concluded. The acquirer of the goods shall also record the movement of goods. The scope of information to be included in the said register shall be defined in the provisions of the Directive. Therefore, the documentation is finally going to be uniform, as well.
Under the Regulation, there is also an obligation to include the VAT identification number of the acquirer of the goods in the VAT-EU recapitulative statement filed by the entity transferring the goods to the call-off stock. This is an additional verification.
What is more, once the harmonised regulations enter into force, the maximum time of keeping the transferred goods in stock shall be shorter. If, within 12 months after transferring the goods, the goods have not been supplied to the acquirer, the vendor shall be obliged to account for the ICA of the goods in the country where they were transferred to. It should be emphasized that under the regulations currently in place in Poland this deadline is 24 months; hence, it is going to be clearly shorter.
What is interesting is that under the Directive, the original acquirer may be substituted by another entity, and it shall not affect the right to apply the simplification. The only precondition for retaining this right is that the substitution of the acquirer of the goods must be recorded in the register that was mentioned earlier.
In the next post of this series, I am going to discuss other quick fixes that will be in force in the entire European Union as of the beginning of 2020. All these efforts should make the VAT system simpler and more effective until a more comprehensive reform is possible.
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