ABC supplies occur frequently within Europe. In simple terms, this means that party A sells goods to party B, party B sells the same goods to party C, but the goods move directly from A to C. Even though the goods only move once, there are still two sales transactions. This often leads to practical questions about the correct VAT treatment, especially when the goods cross an EU border.
As a general rule, only one of the two sales transactions can qualify as an intra‑Community supply (0% VAT). The other sales transaction is considered a domestic supply (potentially subject to VAT). Which sales transaction benefits from the 0% rate depends on who is responsible for the transport.
Intermediary
For VAT purposes, it is essential to identify which party is considered the intermediary. By law, the supply to the intermediary is treated as the intra‑Community supply. This only changes when the intermediary uses a VAT number from the country of dispatch. In that case, the intra‑Community supply is allocated to the supply made by the intermediary.
The intermediary is the party that carries out or arranges the transport. It is important to note that party A (the first supplier) can never be the intermediary. If party A arranges the transport, the supply from party A to party B will always be the intra‑Community supply.
Example of an ABC Supply
Suppose party A in the Netherlands sells goods to party B in Germany, and party B then sells the same goods to party C in France. The goods are transported directly from the Netherlands to France. To determine the correct VAT treatment, it is important to determine how the transport is allocated within the chain.
Party A arranges the transport
When party A arranges the transport, the supply from party A to party B is always the intra‑Community supply (0% VAT). Party B therefore acquires the goods in France. The supply from party B to party C then becomes a domestic French supply (possibly subject to French VAT). If party B does not yet have a French VAT number, it must apply for one to report these transactions.
Party B arranges the transport
When party B arranges the transport, the law states that party B is regarded as the intermediary. As a general rule, the supply to party B is the intra‑Community supply, namely the supply from party A to party B. As a result, party B acquires the goods in France and the supply from party B to party C is a domestic French supply (possibly subject to French VAT).
However, if party B would provide its Dutch VAT number to party C, the supply made by party B is treated as an intra‑Community supply. The supply from party A to party B then becomes a domestic Dutch supply (possibly subject to Dutch VAT), while the supply from party B to party C qualifies as the intra‑Community supply (0% VAT).
In all sitautions, party B will need a foreign VAT number, either in France or in the Netherlands.
Party C arranges the transport
When party C arranges the transport, the law states that party C is regarded as the intermediary. As a general rule, the supply to party C is the intra‑Community supply, namely the supply from party B to party C. The supply from party A to party B must then be treated as a domestic supply in the Netherlands (possibly subject to Dutch VAT). This means that party B must apply for a Dutch VAT number.
Conclusion
ABC supplies require a careful assessment of the transport arrangements and the role of the intermediary. For party B in particular, this may lead to foreign VAT registrations and additional administrative obligations. Fortunately, the EU offers a simplification scheme that can help reduce this burden.
In the next newsletter, which you can subscribe to here, we will elaborate on this regulation and the conditions for making use of it.
