In our previous article, we explained how ABC supplies within Europe work and what VAT implications they have. In doing so, we saw that party B in particular often has to deal with foreign VAT registrations and additional administrative obligations.
Within the EU, however, a simplification scheme exists that can reduce these administrative burdens in certain situations.
What does the simplification scheme entail?
In an ABC transaction where goods are transported directly from party A to party C, it may occur that party B is required to register for VAT in the country of destination (country C). This is because party B is considered to carry out an intra-Community acquisition followed by a domestic supply in that country.
When the intra-Community transport is attributed to the supply A-B, the simplified ABC scheme provides the possibility to avoid these obligations. In that case, no VAT is levied at the level of party B in the country of destination, and the VAT liability is shifted to party C.
When can the scheme be applied?
The simplified ABC scheme may only be applied if a number of conditions are met. The most important are:
- There are three parties involved (A, B, and C)
- All parties have a VAT number in different EU Member States
- The goods are transported directly from party A to party C
- Party B makes arrangements on the transport with party A and ensures that the transport takes place in connection with the supply A–B
- Party B does not have a VAT number in the country of dispatch or destination
- Party C has a valid VAT number in the country of destination
- Party B’s invoice to party C includes the wording “VAT reverse charged”
Incorrect application may result in assessments and mandatory VAT registrations abroad.
How does party B report this in the VAT return?
This can best be explained using an example: Party A in Germany sells goods to party B in the Netherlands. Party B resells these goods to party C in France. The goods are transported directly from Germany to France.
If the simplified ABC scheme is applied, party B reports the transactions as follows:
- Party A issues with their German VAT number an invoice to party B to their Dutch VAT number. This transaction is seen as an intra-Community supply, taxed with 0% VAT. Party B does not need to report this as an intra-Community acquisition in its Dutch VAT return.
- Party B issues with their Dutch VAT number an invoice to party C to their French VAT number. This transaction is seen as an intra-Community supply, taxed with 0% VAT. The invoice must explicitly state “VAT reverse charged”.
- Party B reports this supply as an intra-Community supply in its Dutch VAT return and includes it in the EC Sales List (specific section for ABC transactions).
Conclusion
The simplified ABC scheme can significantly reduce the administrative burden for party B. When the intra-Community transport is attributed to the A–B supply, it prevents party B from having to declare VAT in the country of destination (country C) and removes the need to register there.
At the same time, it is important to carefully assess whether all conditions are met. If this is not the case, party B may still face VAT registration obligations in the country of dispatch or destination.
