In a circular issued by the German Federal Ministry of Finance (BMF) in spring 2023, the tax authorities revised their position on the VAT treatment of chain transactions. The background to this was a number of legislative changes. In a chain transaction, several businesses enter into agreements regarding a single supply of goods. The goods are transported or dispatched directly from the first business in the chain to the final customer. However, each transaction in the chain must be assessed separately as an individual supply. A distinction is made between so-called moving and non-moving supplies.
The particular feature of cross-border situations is that only the moving supply — for example, in the context of an intra-Community supply or an export supply — can qualify as exempt from VAT. The practical risk lies primarily in the failure to identify taxable supplies and reporting obligations in other countries.
Determining the Moving Supply
The BMF notes that the moving supply within a chain transaction is generally determined by which of the participating businesses is responsible for the transport of the goods. The available records must clearly and easily verifiably indicate who carried out the transport or arranged for the dispatch. In the case of dispatch, the relevant factor is the placement of the order with the independent service provider.
In principle, the BMF assumes that the moving supply is attributable to the supply made to the intermediary business, also referred to as the middleman. However, the intermediary may rebut this presumption. To do so, the intermediary must use the VAT identification number of the country in which the supply begins. This should already be done at the time the contract is concluded. The VAT identification number used should be recorded in writing in the relevant order document. Merely pre-printing a VAT identification number on a form is not sufficient. In the case of chain transactions with a connection to a third country, however, the intermediary may also provide evidence of the transport or dispatch by using a VAT identification number or tax number issued in the country of departure.
The rules governing VAT chain transactions, particularly in an international context, are complex. To avoid serious errors, you should always have such arrangements reviewed in advance.
Example
A in Germany orders goods from B in Belgium. B does not have the goods in stock and orders them from C, also located in Belgium. The goods are shipped directly from C to A via a freight forwarder. B has commissioned the freight forwarder, and all parties use the VAT identification number of their respective countries.
Flow of goods
C (BE) → A (DE)
Flow of invoices
C (BE) → B (BE) → A (DE)
Since B arranged for the freight forwarder and, by assumption, also bears the costs and risk of the delivery, the moving supply is attributable to the supply of the goods from B to A. This constitutes a VAT-exempt intra-Community supply. The supply from C to B is a so-called non-moving supply.
If the moving supply were instead attributable to the supply from C to B, then B would be making a taxable supply within Germany. In that case, B would need to register for VAT purposes in Germany, submit VAT returns, and charge and remit VAT accordingly.