Do you comply with the new VAT rules?
The amendment to the VAT Act effective from 1 September 2020 implemented the amended EU tax regulations effective from 1 January 2020. Foreign entities applied these rules regardless of the Czech national legislation, and therefore many of you may have encountered the new VAT rules as early as 1 January 2020. You may be wondering why we are dealing with this topic only now? The answer is simple. On 16 October 2020, the General Financial Directorate issued information on the VAT amendment and specified some procedures. Yes, one and a half months after the amendment came into force and more than nine months after the change in European legislation.
What new rules need to be followed?
The first fundamental change is the fulfilment of the conditions for the application of the tax exemption on the supply of goods to another Member State and the means of evidence associated with it. Furthermore, the information from the General Financial Directorate specifies the rules for the assignment of transport for the delivery of goods in the so-called chain within the EU.
The specification of the transport allocation concerns the supply of goods between Member States in a chain of at least three persons who supply the same goods to each other, the transport takes place directly from the first supplier to the last customer without interruption and this transport of goods is provided by an intermediary (or a person authorised by it). The novelty is the definition of the intermediary person as a person who is not the first supplier or final recipient and at the same time provides transportation. In the chain, the transport can be assigned to only one supply, which can be exempt from tax if other conditions are met, namely the supply of goods between the supplier and the intermediary. An exception may be where the intermediary provides the VAT number of the Member State where the transport is started, i.e. between the first supplier and the intermediary. In such a situation, the transport is attributed to the delivery between the intermediary and its customer. In other situations, where the delivery of goods is not assigned transport, it is a taxable supply.
In practice, this means that in the case of chain trades, it is necessary to emphasise the verification of your company's position in the chain, so that there is no subsequent additional assessment of tax liability on delivery to the intermediary.
For the sake of completeness as regards the rules of assignment of transport, it is appropriate to mention the situation when the transport is performed by a person other than the intermediary. If the transport is performed by the first supplier, the transport is assigned to the first delivery. Otherwise, when the transport is secured by the last link in the chain, the transport is assigned to this last delivery in the chain.
By assigning the transport, the moratorium for the exemption of the delivery of goods to another Member State from the tax does not end. The existing conditions are extended, and the payer is obliged to know the VAT number of the acquirer of the goods and to state the delivery of the goods in the summary report. The payer must know the customer's VAT number as of the date of the taxable supply. If the supplier does not know it, the tax exemption cannot be applied. For cases where the VAT number is communicated additionally after the delivery, this deficiency can be corrected by means of a corrective tax document and be exempted from tax if the other conditions of performance are met. The correction will be made by an additional tax return for the tax period in which the tax was incorrectly determined. A simple rule also applies here: if I apply a tax exemption when delivering goods to another Member State, I must report this delivery in a summary report. Reporting goods in the recapitulative statement has already become a routine matter, but now the tax exemption is directly linked to it.
A big novelty is the documentation of evidence in the application of the VAT exemption for deliveries to another Member State. The information from the General Financial Directorate also deals with the issue of means of proof for proving the transport of goods and their exemption from tax upon delivery to the other Member State. Article 45a has been implemented in the Act, which imposes the obligation to have two documents issued by persons independent of the seller and the buyer in order to apply the tax exemption on delivery to the other Member State. According to the information issued, this obligation does not apply to cases where the transport is provided by the seller's or buyer's own means of transport, which is completely new information. In our opinion, this possibility does not clearly follow from the law or the directive, and therefore we recommend securing documents that prove transportation. Our colleagues have already covered this topic in the February issue of our newsletter. It is still true that in order to exempt the supply of goods, there must be an actual movement of goods from the Czech Republic to another Member State. The list of means of proving a shipment is not exhaustive in Article 45a of the EU Implementing Regulation and can be proved in other ways. In any case, if you follow the methods set out in Article 45a, you increase the degree of certainty that the tax administrator will not question the exemption. We recommend that you always have CMR transport documents and at least a confirmed receipt of the goods from the customer, on which the specific person who physically receives the goods and his signature confirming receipt of the goods will be indicated in block letters.
In conclusion, there is nothing left but to state that while the conditions for tax exemption for the supply of goods to another Member State have been tightened, their fulfilment nonetheless brings greater certainty. We hope that the tax administrator will stick to the information issued by the General Financial Directorate and will only require independent documents if the transport is provided by a third party. Nevertheless, we recommend having the documents secured and, in case of uncertainty, contacting an experienced professional.