Transit sale of goods carried out from the territory of a third country (Ukraine) directly to another EU Member State without entering the territory of Bulgaria. VAT taxation and necessary documents
Transit sale of goods
Bulgarian company buys pellets from Ukraine, pays to the Ukrainian company and sells them to a company in Italy. Goods travel directly to Italy.
The Bulgarian company is acting on its behalf and for its own account, and is not a commission agent of the Italian company. Is the deal regarded as intra-Community supply, should VIES statement be submitted and should it be declared in the Intrastat system?
To say it in a more clear way, the pellets will be bought by our Bulgarian company, and then they will be resold to other companies registered for VAT in Italy (taxable persons), and we will not be commission agents. Could you, please, explain to me how the situation with the VAT stands in this case?
Answer:
In these circumstances, there is a transit operation for the sale of goods with three participants, established in a third country (Ukraine) and in two different Member States (Bulgaria and Italy), respectively. Two essential issues concerning the customs and tax obligations of the participants in the operation are of great importance:
- What are the conditions of the supply for the individual transactions included in the supply, i. e. who, in the particular transaction, pays for the transport costs and/or for the risks related to the goods supplied – the seller or the buyer; and
- How are payment relationship between the participants in the operation arranged.
These two points are important for legitimate qualification of the position occupied by the Bulgarian company in this operation because:
- Firstly, if in the purchase of goods from the Ukrainian company it acts as a commission agent, i.e. it carries out the transaction on its own behalf but for the account of the Italian company, the taxation of the supplies carried out by the Bulgarian company is pursuant Art. 127 of the VAT Act. If it is purchasing on its own behalf and for its own account, and then reselling it to the Italian company, it acts in the position of an independent trader – transiting party in the operation. In our answer we assume that the company acts in the operation in the position of a transiting party;
- Secondly, the goods being transacted were acquired in Ukraine and were sold to a company established and registered for VAT purposes in Italy, without entering the territory of Bulgaria. Relevant to the place of supply of the Bulgarian company, and hence for its tax obligations in connection with the act of purchase-sale is whether the condition of supply under which the transaction with the Italian company was concluded sets obligations for place of supply situated on the territory of Italy or not. Such obligations (including liabilities to pay customs duties and VAT on importation) can occur, for example, for transactions concluded under a trade term of category "D" of the International Commercial Terms (Incoterms). In our answer we assume that the deal was not concluded under a term in this category and the company has no liability in connection with the importation of goods in Italy.
Under international trade rules, the operation in which the Bulgarian company participates in this case is considered a "transit sale of goods" and the supply performed by it to the Italian company is not ICS /intra-Community supply/. For the supply performed by it, the Bulgarian company is not required to submit VIES statement, nor is required to declare it in the Intrastat system. The reason for this is the fact that this operation does not involve movement of goods between the territories of two Member States which requires declaring for the purposes of European statistics on trade of goods within the system "Intrastat", nor there is a supply the tax on which shall be self-determined by the recipient, which is controlled by the VIES system. In this case there are two separate supplies - one of the Ukrainian company to Bulgarian company, and second from the latter to the Italian company. Pursuant to the VAT Act, both supplies have place of supply outside the country. The place of supply of the first supply is the territory of Ukraine.
For the Ukrainian company this is export, and under the international rules a zero tax rate is to be applied to it.
The place of supply of the second supply is Italy, and it is subject to VAT taxation in the implementation of customs procedures relating to import. In this connection the Bulgarian company will have obligations concerning the VAT on the imported goods only if the supply performed by it is concluded under a trade term that requires that this company will take the costs and the risks related to the goods to a certain place of supply (a city, a settlement, a site or a warehouse) in Italy, and accordingly it is indicated on the customs import declaration as an importer. Otherwise, the Italian company is liable for VAT on import of goods.
In such cases, it is usually said that the supply of the Bulgarian company is beyond the scope of our VAT Act - as is our example with the pellets from Ukraine.
Under these conditions the supply of Ukrainian company is considered an export. Its place of supply is the territory of Ukraine and it is taxed at a zero rate. For the supply, the Ukrainian company has provided the Bulgarian company an invoice and an export customs declaration.
The Ukrainian company is a dispatcher, the Bulgarian company is a supplier, and the other EU country - recipient.
In the current form of the customs declaration by which goods for import are declared (given the harmonization of customs legislation of the EU Member States, the Italian is the same as ours), the position "supplier" does not exist. To identify participants in import, in box 1 the dispatcher shall be indicated, i. e. in this case the Ukrainian company, and in box 5 – the recipient (the Italian company), and in box 14 - the declarant, provided that the importation of goods in Italy is carried out by the Italian company, it shall be indicated as both a recipient of the goods and declarant of importation.
If the supply is declared and imported by the Bulgarian company, it shall take customs liabilities, including VAT on import, and then it will sell the goods to the Italian company, by which it will form taxable turnover in Italy. If it has no such obligations to the Italian company (as assumed above), it is relevant that it shall be indicated in the declaration as the dispatcher, or not be indicated in the declaration at all. In this case for the Italian company this will be import, and the Italian company shall take the relevant customs and tax obligations on it. In case of such assumptions, no obligations for the Bulgarian company will arise in Italy.
Given that the export of goods subject to the operation was carried out by the Ukrainian company, and the goods are imported in the EU - by the respective European company, your supply has place of supply outside the country (Bulgaria). In the invoice that you will issue, no VAT will be charged, and Art. 86, paragraph 3 of the VAT Act should be indicated as grounds. The supply is not subject to declaration by VIES statement.
The data from the invoice shall be registered in column 23 of the Sales Register, and in box 18 of the VAT return for the tax period. By virtue of Art. 69, para. 2 item 1 of the VAT Act, this supply gives the company the right to have a tax credit in the same or in one of the following twelve tax periods subject to the relevant regulations.
As proof of its participation in the operation, the company should have:
- An invoice for the goods issued to it by the Ukrainian company and a copy of the export customs declaration in which it is indicated as a recipient for the transaction in connection with the purchase, and
- Invoice for supply to the Italian company and a copy of the import customs declaration.
- Transportation document CMR and document for cargo insurance of goods.
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