This newsletter seeks to address the VAT treatment of a scenario where a business undertaking transports goods owned by it from one Member State to another without selling the goods. In tax parlance this is called the movement of own goods or the relocation of own stock because what happens is merely a business undertaking’s moving goods owned by it from one Member State to another.
Our experience reveals that many companies are not aware of the fact that, apart from certain exceptions, such transactions are, for tax purposes, similar to sales, i.e. subject to VAT.
What VAT liability can arise?
Taxpayers have to treat such transactions as if a tax exempted intra-Community supply of goods took place in the country of dispatch and an intra-Community acquisition of goods took place in the country of destination. The essence of the taxation mechanism applicable to intra-Community acquisition is that buyers have to account for the tax payable on purchased goods at the applicable VAT rate. Naturally, the payable VAT thus determined is deductible only if other conditions of deductability also apply.
A somewhat more detailed analysis serves as an illustration:
If a Hungarian tax payer has his own goods transported to another Member State without selling them, as a main rule, he has to indicate the transport into the other Member State as a tax exempt supply of goods under his Hungarian EU VAT number in his tax return.
Concurrently, he has to apply for an EU tax number in the country of destination and indicate such transport as an intra-Community acquisition of goods under the EU tax number obtained in the other Member State in his tax return. VAT is paid at the tax rate applicable in the other Member State and may be deducted simultaneously if the goods transported to the other Member State serve the taxable activity ensuring its eligibility for deduction and they are not subject to prohibition on deduction under the applicable regulations in the Member State of destination.
The following example will illustrate the above-described mechanism.
“A” is a manufacturing company having its registered seat in Hungary which stores its inventory in a rented warehouse in the Czech Republic in order to serve its customers from there. For the sake of the example, the inventory is not a call-off stock. The goods are manufactured in Hungary and shipped from there to the warehouse in the Czech Republic. Occasionally, portions of the inventory stored in the Czech Republic are shipped back to a warehouse in Hungary for reasons of logistics.
What is the correct treatment of VAT in the above case?
There are two instances of transferring stock in the above example. One is a cross-border transfer of assets during the transport from a factory in Hungary to a warehouse in the Czech Republic and the other is when the goods in the warehouse in the Czech Republic are shipped back to the warehouse in Hungary.
The obligations incurred in the first transaction (Hungary and the Czech Republic) are as follows:
The Hungarian company has to register for VAT purposes and apply for a tax number (an EU VAT number) in the Czech Republic. The movement of the Hungarian company’s own goods from Hungary to the Czech Republic has to be indicated as a tax exempt intra-Community supply of goods in the Hungarian tax return and the ‘Recapitulative Statement’ (EC sales list report: form No A60). The Hungarian company’s (own) Czech VAT registration number has to be indicated as the partner’s tax number.
Regarding the same period, the Hungarian company has to indicate the transaction as an intra-Community acquisition of goods in its Czech tax return and determine the tax payable in accordance with the applicable Czech rates. If the conditions of the deduction apply, it can immediately deduct the tax that it has charged.
In the second transaction (the Czech Republic and Hungary) practically, the reverse of the above tax return filing obligation is incurred.
We wish to point out that the tax authorities using VIES (VAT Information Exchange System) can exchange the data indicated in the summary declarations filed by the taxpayers with each other. If VIES control data show that a transaction in one Member State cannot be matched up with a corresponding transaction in another Member State, tax authorities may start to investigate the causes.
What value has to be indicated in the declaration?
In the case of transfers of own goods, in the absence of a sale and, hence, consideration, the purchase price of the goods as at their transfer or, in the absence of such, the cost of manufacturing is used as a tax base.
The value determined in accordance with the above is applicable on both the outgoing and the incoming sides. Accordingly, the taxpayer indicates the purchase price of the goods or, in the absence of such, the cost of manufacturing as the net value of the tax exempt intra-Community supply of goods in the tax return filed in the country of dispatch and as a tax base for the intra-Community acquisition of goods in the Member State of destination.
What documents are required to be issued?
It is important to note that no invoice for a transfer of own stock has to be issued because no supply of goods takes place.
Nevertheless, an accounting document for internal use has to be drawn up in order for tax liability to be clearly determined. The document should set out at least the following:
- date of the document
- date of supply
- name of the taxpayer
- the two addresses involved in the transaction of the taxpayer
- the two tax numbers involved in the transaction of the taxpayer
- tax base
- reference to the tax exemption.
Exceptions to transfers of assets
There are some exceptions to transfers of assets, i.e. there are transfers of assets between Member States that are not required to be treated as Community transactions. Examples include, inter alia, (1) movement of goods through distance selling or (2) the scenario, in the case of toll manufacturing, when a product is installed or assembled in the Member State of destination on condition that the product is shipped back after it has been worked on and (3) call-off stock. Exceptions are set out in Articles 12(2) and 22(2) of the Hungarian VAT Act.