Reserve charge statement required with simplified triangular transactions

What is triangulation?

With triangulation, party A sells goods in Member State 1 to an intermediary, party B, who is based in another Member State or has a VAT number there. Party B then sells these goods to party C in a third Member State. The goods are sent directly from Member State 1 to party C in Member State 3.

In this situation, although there are two invoicing streams, the transport can only be assigned to one sales transaction. With normal triangulation, party B must always identify itself in Member State 1 or in Member State 3, depending on which relationship the transport is in.

In the case of simplified triangulation, the transport is assigned to the first relationship, A-B. The delivery from A to B is then classified as an intra-community delivery. This means that the intermediary, party B, performs a tax-exempt intra-community acquisition in the final Member State 3, with the delivery to C in that case being "local" delivery. This simplification regime means party B does not need to be registered in Member State 3.

Austrian VAT authority

An Austrian company purchased a car in 2014 from an English seller – then still an EU Member State – and this was immediately sold on to a Czech company. The car was delivered directly from the United Kingdom to Czechia.

The invoice to the final seller stated: "intra-community triangulation exempt from VAT". During inspection, the Austrian VAT rejected the application of the simplification regime. This is because the invoice to the final seller did not indicate that it needed to pay VAT. In order to be certain of whether the invoice statement is a material condition for applying the simplification measure, a question was submitted to the European Court of Justice.

Court of Justice ruling

The Court of Justice stated in the judgment that simplified triangulation deviates from the general rules concerning intra-community acquisition. In order for simplified triangulation to be applied, all material conditions need to be met. The "reserve charge" statement may by no means be replaced with any other statement.

The consequence of this was that the Austrian VAT authority was indeed able to demand Austrian VAT on the intra-community acquisition, since the intermediary has stated its Austrian VAT number to the English seller. Neither is it possible to correct the invoice if one the conditions for applying the deviating regime for triangular transactions has not been fulfilled.

It is therefore always important to include the correct invoice statement. If this does not occur, there is always the risk you will have to request a VAT number in the country the goods arrive in, making this ruling a further abandonment of the substance-over-form principle.

If you have any questions about triangulation or about using the correct invoice statement, please contact one of our experts through the contact box below.