Transit sale of goods carried out from the territory of another EU Member State to a third party. VAT taxation and necessary documents
- Decision of the Supreme Administrative Court No 9253
- Opinion of Bulgarian National Revenue Agency for supply of goods outside the EU - Art. 28 of the VAT act.
According to Commercial Act (CA) - The Parties may agree that the vendor shall deliver the goods to a third person, specified by the Buyer (art. 329, paragraph 1 of CA), and this is referred to as “transit sale”. These are commercial relationships between the three persons, and depending on where the persons are established /in the EU or in a third country/, and whether they are registered for the purposes of VAT taxation, different cases of tax treatment of the supplies arise.
The following circumstances and combinations of them determine the tax regime of supplies
- in the transit sale, participants could be: a vendor, an interim or a final buyer of the goods.
- where the participants in the sale are established, and what their tax status in the State where the transport of goods started and/or ended is.
- the direction of supply - ”from” or ”to” the territory of the Community.
1. Tripartite operations. For this purpose, Art. 15, section 1 - section 4 of VAT Act define the tax liabilities under VAT in case of supplies by intra-Community traders, involving individuals established and registered for the purposes of taxation in three different Member States.
2. International transit sales with participation of individuals, established in both EU Member States and in third parties or territories. A typical example of issues arising in case of such sales is the following case:
Bulgarian company registered for VAT purposes purchases goods from a Polish company registered for VAT purposes in Poland. However, the goods are transported to a non-EU country – Ukraine, without arriving on the territory of Bulgaria.
Bulgarian company receives from the vendor an invoice in which no VAT is charged. The invoice for the transport of goods is issued to the Bulgarian company. Due to the fact that delivery is not dispatched or transported from the territory of the country to a third country or territory, the Bulgarian company cannot obtain a written customs declaration certified by customs office of exit. How, in these circumstances, should the supply be documentarily formalised to the final recipient of the goods who is outside the EU, and what documentary evidence should be available. Should the company charge VAT in the invoice issued to its counterparty, and if not, which provision of the applicable VAT legislation should be indicated in the document as a reason for doing so.
Under the circumstances above, a transit sale exists, whereby two separate transactions for purchase of goods are made between:
“A” - vendor of goods, registered for VAT purposes in Poland
“B”' - Bulgarian company - its interim buyer, registered for VAT purposes in Bulgaria
'C' - final recipient of the goods established in a non-EU country - Ukraine.
In the case herein the transit sale is carried out in the following order:
Company 'A' sells (invoices) to the company 'B' the goods, subject of the transaction. The goods do not leave the territory of Poland, but are dispatched by ”A” at the expense of „B” outside the territory of the Community. Between the Polish company - vendor of the goods and its final recipient there are no direct trade and payment relationships, and the supply is invoiced by ”B”.
Moreover for the Polish company - vendor of the goods - the hypothesis of Art. 28, paragraph 2 of VAT Act is present, of course in the version in which „place in the territory of the country” is the territory of Poland. In the case of this hypothesis, the supply is dispatched from the territory of a EU Member State to a third party or territory „by” or ”at the expense of” a recipient, established outside the territory of the Member State, from where the goods are dispatched. In this case, the third party, Ukraine, is outside the EU territory, where the final buyer of goods is established, and the ”recipient” of the supply within the meaning of the provision of Art. 28, paragraph 2 of the Act is the company “B” which gave the order where the purchased goods to be dispatched. In accordance with this provision, when the recipient of the supply is a person who is not established on the territory of the Member State which is the starting point of transportation, and the goods are dispatched or transported from this territory to the territory of a third party „by” or “at the expense of” that person, the supply is taxable with zero tax rate. Therefore, for the purposes of VAT taxation, the supply of goods, implemented by the Polish company, is supply with a zero tax rate. This is the reason for not including tax in the invoice, which is issued to the Bulgarian company.
Moreover, for the Polish company „A” the supply falls under chapter 3 of VAT Act, i.e. with a zero tax rate, known as ”export”, and for the Bulgarian company „B” supply with place of implementation outside the territory of the country. In this connection, Art 6 of Ordinance No H-17/13.12.2006 of Ministry of Finance for the implementation of Annexes No 37 and No 38 of Regulation No 2454/93 of the EEC on the written declaration of export through SAD /single administrative document/ states that for export, SAD shall provide information about the vendor (exporter) of the goods and for their recipient - the person to whom the goods will be physically provided, and not the person who is their immediate interim buyer. In this sense, the fact that the Bulgarian company is not present in the SAD, which accompanies the export of goods purchased by it, does not change the taxation of the supply. If in the customs declaration, respectively in the accompanying export document, the Polish company is referred to as an exporter, it should be considered that for proof of the supply carried out by the Bulgarian company it is enough to have a printout of the computer version of the accompanying export document, issued by the relevant customs administration, that the goods have left the territory of the Community.
The existence of such document, in which it is referred to as a vendor, of transport document, issued in its name, in which it is also referred to as a dispatcher, as well as the invoice by the Polish company for the goods exported, prove its right to classify the supply as “supply with a place of implementation outside the territory of the country”. In this sense, though in another context, the opinion of Bulgarian National Revenue Agency on the matter concerning certification of the circumstances under art. 28 of VAT Act in case of supplies of goods shipped or transported outside the territory of the Community, referred to in the letter ref. No 44-00-28/ 17.12. 2007, is.
Therefore, under the circumstances in the case described, in the invoice, which the third party issued to its Counterparty, the Bulgarian company shall not charge tax. Moreover, as a reason for not charging, it should indicate art. 69, paragraph 2, in connection with art. 28, section 2 of the VAT Act. Supply details shall be recorded in the sales ledger (column 23) and in the VAT return for the respective tax period.
It should be borne in mind that in case of doubt concerning the credibility of the supply of goods dispatched or transported outside the territory of the Community by taxable persons established on the territory of the Member State other than that to the territory of which the goods are exported it is possible to file a written inquiry to the relevant customs office of export to verify physical export of goods outside the territory of the Community.
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