INSIGHT: VAT Triangulation Case—CJEU Judgment Could Benefit Business

The Court of Justice of the European Union (“CJEU”) has released a judgment that could bring benefits to businesses trading in goods across EU member states. In particular, the judgment focused on the availability of the “triangulation simplification.”

Triangulation is a simplification that is intended to negate the need for an additional VAT registration where there is a supply chain for sales of goods involving businesses registered for VAT in three different EU countries and the goods are moved cross-border. For example, where company B is the middle party in a supply chain where company A sells to company B, who sells to company C, with the goods being delivered directly from company A to company C, Triangulation can negate the need for B to register for VAT in either country A or C. However, the question arises as to what happens when company B is already VAT registered in one of those jurisdictions.

Judgment of the Court

On April 19, 2018 the CJEU ruled on the application of the conditions of the Triangulation simplification in the case Firma Hans Bühler KG (C-580/16: http://src.bna.com/yYa ).

Firma Hans Bühler (“FHB”), a limited partnership, established and identified for VAT purposes in Germany, operated a production and trading business in that member state. From October 2012 to March 2013 it was also identified for VAT purposes in Austria, where it planned to set up a permanent establishment.During that period, FHB used its Austrian VAT identification number exclusively to buy products from suppliers established in Germany and to sell them to a customer established and identified for VAT purposes in the Czech Republic.

The products were dispatched directly from the German suppliers to the Czech final customer. By setting up its invoice flow in this manner, FHB received an invoice without VAT and could issue an invoice without VAT, thus reducing the VAT cash flow impact of the transactions.

The Austrian tax authorities challenged the application of the simplified triangulation, stating that the said simplification scheme could not be applied as FHB also disposed of a VAT number in the country of dispatch, i.e. Germany.

The Court disagreed with the position taken by the Austrian VAT authorities. The Court ruled that the simplified triangulation scheme cannot be refused to a taxable person on the sole ground that that taxable person is also identified for VAT purposes in the member state in which the intra-Community dispatch or transport began. Such a refusal would give rise to a significant difference in the manner in which taxable persons are treated and might, without justification, restrict the pursuit of economic activities on the basis of the VAT identification numbers of the taxable person.

Impact for Businesses

Although triangulation is a simplification set out in the EU VAT directive, experience has shown that it has been interpreted and applied differently across the EU member states. Some EU member states (such as Austria in this case) denied triangulation where the intermediary is VAT registered in that country, on the basis that the simplification was not relevant as it was designed to negate the need for a VAT registration but one already existed.

Planning Point

The FHB ruling offers taxable persons with multiple VAT numbers the possibility to structure their invoice flows for cross-border flows of goods in such a way that the cash flow impact of VAT is minimized and impacted businesses are encouraged to review their arrangements. Organizations should seek specialist advice where possible to ensure they remain compliant with this simplification.