Chain Transactions – Intra-Community Triangular Transactions

Where several entrepreneurs enter into a supply transaction concerning the same item and the item passes directly from the first entrepreneur to the final customer, this constitutes a chain transaction within the meaning of the German VAT Code (§ 3 Abs. 6a S. 1 UStG). A special form of chain transaction is the intra-Community triangular transaction (§ 25b UStG).

Principle: Intra-Community Triangular Transaction

The intra-Community triangular transaction corresponds in wording to the chain transaction, but the following additional requirements must be met (§ 25b Abs. 1 S. 1 UStG):

1. three entrepreneurs conclude sales transactions concerning the same item, and that item passes directly from the first supplier to the final customer,
2. the entrepreneurs are registered for VAT purposes in different Member States in each case,
3. the item passes during the supply from one Member State to another,
4. the item of supply is transported or dispatched by the first supplier or the first customer.

If more than three entrepreneurs are involved in this supply transaction, the simplification rules for the intra-Community triangular transaction apply only to the three entrepreneurs at the end of the supply chain.

Taxation of an Intra-Community Triangular Transaction Without the Simplification

Example:

Entrepreneur D from Cottbus orders a production machine from the machinery dealer DK in Denmark. Because DK does not currently have this machine in stock, he passes the order on directly to the machine manufacturer Ö in Austria. After completion, Ö transports the machine directly to D in Cottbus.

In this chain transaction, two supplies are therefore carried out (Ö to DK, DK to D). The movement of goods, and thus the moving supply, can be assigned to only one of these supplies (§ 3 Abs. 6a S. 1 UStG); only for that supply can the VAT exemption for intra-Community supplies (§ 4 Nr. 1 b) UStG) be considered. The first supply (Ö to DK) constitutes the moving supply, since this is where the movement of goods takes place. The place of the moving supply is, pursuant to § 3 Abs. 6a S. 2 UStG in conjunction with § 3 Abs. 6 S. 1 UStG, in Austria (start of transport), so that the VAT exemption for intra-Community supplies applies here. The second supply (DK to D) is the stationary supply, since no movement of goods takes place. For this supply, the place of supply is in Germany pursuant to § 3 Abs. 7 S. 2 Nr. 2 UStG (end of transport). The supply by entrepreneur DK is therefore subject to German VAT (intra-Community acquisition), and a German VAT registration would be required.

However, since the German legislator wishes to simplify intra-Community trade in goods, the reliefs under § 25b UStG come into play. The VAT is owed by the final customer if the following conditions are met:

1. the supply was preceded by an intra-Community acquisition;
2. the first customer is not established in the Member State where the transport or dispatch ends. He uses the same VAT identification number vis-à-vis the first supplier and the final customer, which was issued to him by a Member State other than the one in which the transport or dispatch begins or ends;
3. the VAT is not shown separately; the invoice includes a reference to the intra-Community triangular transaction and to the transfer of the tax liability (e.g. "Innergemeinschaftliches Dreiecksgeschäft nach § 25b UStG" or "Vereinfachungsregelung nach Art. 141 MwStSystRL");
4. the invoice states the VAT identification numbers of the first and final customer.

Application Example – Simplification for Intra-Community Triangular Transactions

Under the simplification, the final customer – entrepreneur D from Cottbus (Germany) – assumes the VAT liability for the intra-Community acquisition from DK in this example and, if entitled to deduct input VAT, can simultaneously claim input VAT in the same amount. Entrepreneur DK is thereby exempted from the obligation to register in Germany. However, DK must of course still report the supply to D in his domestic VAT pre-registration and EC Sales List.