ABC supply chain
Supply chain transactions (A-B-C) are referred to as such when goods are the object of successive sales (A Þ B and then B Þ C) but a one and only intra-Community transport.
In this supply chain, only one supply with transport can be defined as an intra-Community supply exempt from tax. Other operations are supplies without transport. Determining to which operation the transport must be imputed, that is to say the first (A Þ B) or the second supply (B Þ C), may be a controversial issue when the intermediary B takes care of transporting the goods. Indeed, the latter can act either as a purchaser of A or as a vendor of B.
The transport will be imputed to the first relation and the A-B sale will be considered as an intra-Community supply exempt from the tax in the Member State of departure of the transport provided B acquires the right to dispose of the goods as owner, that he expresses his intention to transport them to another Member State presenting his VAT identification number attributed by the said Member State and insofar as the transfer of the right to dispose of the goods as owner to the client C in the Member State of destination of the intra-Community transport has been granted.
According to European case law, the supplier effecting the first supply might be held liable to VAT payment on this operation if he had been informed by the person acquiring the goods of the fact that the goods would be sold on to another taxable person before they left the Member State of supply and if, after receiving the information, he failed to send a corrected invoice including VAT to the person acquiring the goods.
In practice, the seller A might not exempt his supply from VAT if the intermediate purchaser B had already sold on the goods to C before their physical movement outside national territory, despite the provision of a valid VAT identification and transport documents.
Example
A Dutch supplier (A) sells goods to a Belgian intermediary (B) who resells them to a final Belgian client (C). The successive sales are made EXW. The property right of the goods is contractually transferred to the purchaser at the agreed place of removal of the goods (The Netherlands). For practical reasons, B takes care of the physical transport of the goods from the Netherlands to Belgium.
It is a risky situation. The VAT exemption of the first delivery (A – B) as an intra-Community supply may be refused by the Dutch tax authorities since the second transfer of the right to dispose of the goods as owner to the final client C is performed in the Netherlands (Member State of delivery).
In that case, it is better to lay down general sales conditions covering the transfer of the right from B to C to dispose of the goods as owner at the final place of destination of the goods and not at the place of removal. For instance, such an indicator could be the use of DDP Incoterm in the relations between B and C.
Conclusion
In a supply chain, it is essential to know when the right to dispose of the goods as owner has been transferred from B to C. Has this transfer been carried out before or after the physical transport of the goods outside the country of delivery?
If they can provide valuable guidance, Incoterms are per se insufficient. The answer to that question is more than probably in the sales contract. One may be extremely watchful when drafting these general sales conditions in order not to jeopardize the VAT exemption of the first supply.
Source
C.J.E.U., dd September 27th, 2012, VSTR, case C-587/10