VAT—triangulation
Produced in partnership with John Fuszard of Sagars Accountants Ltd
VAT—triangulation

The following Tax practice note produced in partnership with John Fuszard of Sagars Accountants Ltd provides comprehensive and up to date legal information covering:

  • VAT—triangulation
  • Typical triangulation transaction
  • VAT treatment without simplification
  • VAT treatment with simplification
  • Conditions
  • Procedural requirements
  • UK intermediate supplier
  • UK final customer
  • Typical triangulation examples
  • Example 1—the original supplier is VAT registered in the UK
  • More...

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marks the end of the Brexit transition/implementation period entered into following the UK’s withdrawal from the EU. At this point in time (referred to in UK law as ‘IP completion day’), key transitional arrangements come to an end and significant changes begin to take effect across the UK’s legal regime. This document contains guidance on subjects impacted by these changes. Before continuing your research, see Practice Note: What does IP completion day mean for Tax?

Triangulation is a VAT simplification measure that was introduced to reduce the requirement for businesses to register for VAT in other EU jurisdictions.

Triangulation refers to the situation in which there is a supply of goods along a chain of three parties, but the goods are physically delivered from the first party in the chain directly to the last. Each of the three parties must be established, and VAT registered, in a different EU Member State.

Even though the goods only move once, there are two supplies: from the original supplier to the intermediate supplier, and from the intermediate supplier to the final customer.

Triangulation should not be confused with some other VAT rules that are relevant in situations involving three parties:

  1. tripartite supplies in which a third party provides consideration (exemplified by the Redrow case, albeit that case concerned the supply of services)—in

  • a third party consideration case there is one main supply, say from A to C, but B provides all or part of the consideration for that supply. For more details, see Practice Note: Tripartite supplies—third party consideration

    1. intermediary or agency supplies, in which a third party (B) arranges a supply from A to C but does not take part in the main transaction in its own right—B makes a separate supply of intermediary services. Triangulation is only relevant where all three parties take part in the transaction as principals. For more details on intermediary services, see Practice Note: VAT treatment of intermediaries and agents

  • Triangulation only applies to supplies of goods (not services).

    Typical triangulation transaction

    The following diagram demonstrates how a typical triangulation transaction is undertaken:

    For example, B (UK intermediate supplier) receives an order from C (Italian final customer).

    B places an order with A (Dutch original supplier) to fulfil the order. A sends the goods directly to C in Italy. Therefore the goods go directly from the Netherlands to Italy.

    The original supplier A invoices B for the goods and B in turn invoices C.

    VAT treatment without simplification

    Without the triangulation simplification, the VAT treatment in this example would be:

    1. the Dutch original supplier, A, can zero-rate the supply to B using B's UK VAT registration number, under the Dutch equivalent of the rules described in Practice Note: VAT—selling goods in the EU

    2. B is treated as making an acquisition in Italy, under the Italian equivalent of the rules described in Practice Note: Vat—buying goods in the EU

    3. B is then treated as making an onward domestic supply in Italy to C, the Italian final customer

    B's acquisition and onward supply in Italy would make it liable to register for VAT in Italy irrespective of the use of its UK VAT registration number because there is a nil VAT registration threshold for non-established taxable persons making any supplies in a Member State in which the VAT is due.

    VAT treatment with simplification

    If the conditions described in this note are met, B can choose to adopt the triangulation simplification. This means that B can choose for C to account for VAT in Italy on B's behalf. The supplies by and to B are disregarded and B does not have to VAT register in Italy. If B chooses to adopt this procedure C has no choice in the matter: C must account for the Italian VAT.

    Conditions

    The triangulation simplification is only available if all the following apply:

    1. all parties must be VAT registered in different EU Member States—non-EU suppliers can be involved in triangulation transactions providing they are VAT registered in an EU country

    2. the goods must remain in the EU and the goods must move directly from the original supplier (A) to the end customer in the chain (C)

    3. only three parties can be involved in a triangulation transaction—if more than three parties are involved this is called a chain transaction and different VAT rules may apply

    4. the intermediate supplier must not be VAT registered, or required to be VAT registered, in the country where the goods are sent

    5. the end customer (C) must be registered for VAT in the country where the goods are delivered, and

    6. the relevant procedural requirements are met

    The triangulation simplification does not apply (and is not necessary) if two of the parties are VAT registered in the same Member State. For example, if A and B are both UK VAT registered, then the supply from A to B takes place in the UK and is subject to UK VAT, whilst the supply from B to C is a zero-rated intra-EU supply with an acquisition by C in C's Member State (see Practice Note: VAT—selling goods in the EU).

    In Firma Hans Bühler, a limited partnership, established and VAT registered in Germany, was also VAT registered in Austria. Bühler acquired goods from suppliers in Germany which were sold to a customer established and VAT registered in the Czech Republic. These goods were transported by the German suppliers directly to the Czech customer. Bühler used its Austrian VAT number and recorded the transactions as intra-Community triangulation transactions, with the final customer liable to account for the VAT.

    The Court of Justice held that where an acquirer is identified for VAT purposes in several Member States, only the VAT identification number under which he made the intra-Community acquisition should be taken into account in assessing whether the conditions laid down in Article 141(c) are met. Provided the substantive conditions of intra-Community acquisitions are met, a taxable person should not be denied the use of the simplification arrangements solely due to being established or VAT registered in the Member State of origin of the goods.

    Procedural requirements

    A business that wishes to adopt the triangulation simplification must fulfil a number of procedural requirements.

    UK intermediate supplier

    In the case of a UK intermediate supplier (B), B must:

    1. issue a VAT invoice to the final customer (C), indicating that the triangulation rules are being applied, and

    2. include details of triangular supplies in its EC sales list—this is a return that businesses have to submit containing details of intra-EU supplies of goods and services that are taxable in the customer’s Member State. The information provided on the EC sales list is used by HMRC and the tax authorities in other Member States to make sure that VAT has been correctly accounted for

    UK final customer

    If the intermediate supplier (B) is in another EU country, and the final customer (C) is in the UK, then if B wishes to use triangulation to avoid having to register for VAT in the UK it should:

    1. issue C with a VAT invoice within 15 days of the date on which the supply would otherwise have taken place under normal UK tax point rules for supply of goods (see Practice Note: At what point in time is a supply of goods made?)

    2. notify HMRC that it intends to use the triangulation requirements, including B and C's details, and the delivery date of the goods, and

    3. send a copy of the notification to C, so that it is aware that it needs to account for VAT

    In practice, overseas traders seldom notify HMRC that they are taking advantage of the triangulation simplification, probably because they are unaware of this requirement. However, provided that B's invoice clearly states that this is a triangulation transaction, the UK final customer (C) will be aware that it needs to account for acquisition tax on the purchase of the goods. The UK customer can reclaim the acquisition VAT as input tax where the goods are incurred for the purposes of making taxable supplies.

    Typical triangulation examples

    The following examples illustrate how triangulation works from a UK perspective in different scenarios involving an original supplier (A), an intermediate supplier (B) and a final customer (C).

    Example 1—the original supplier is VAT registered in the UK

    The original supplier A (UK Co) will treat the sale in the same way as any intra-EU sale of goods. UK Co will need to obtain details of the intermediate supplier’s (B (French Co)) EU VAT registration number and quote this on UK Co’s sales invoice issued to French Co. The invoice should also state ‘intra-EU supply of goods’ or similar.

    UK Co will need to obtain acceptable evidence that the goods were removed from the UK to another EU Member State.

    The sale will be zero-rated in the UK by UK Co, as the goods were sold to a customer that is registered in another EU country (French Co) and the goods were physically removed from the UK (see Practice Note: VAT—selling goods in the EU).

    UK Co will include the sale on its UK VAT return and the sale should be declared in the same way as any intra-EU sale of goods.

    C (German Co) will account for VAT on French Co’s supply in German Co’s Member State, and as a result French Co will not have to register for VAT in Germany (unless it is making other taxable supplies in that country).

    Example 2—the intermediate supplier is VAT registered in the UK

    B (UK Co) will provide its UK VAT number to A (French Co) so that French Co can zero-rate its supply to UK Co. French Co will treat the supply to UK Co as an intra-EU dispatch from France.

    UK Co will issue an invoice to the final customer (C (German Co)) in respect of the goods. UK Co should ensure that it obtains the EU VAT registration number for German Co and quotes this VAT number on the sales invoice. The sales invoice should also state ‘triangulation transaction’ or something similar.

    UK Co will not charge German Co UK VAT on the sale.

    UK Co will not record a triangulation transaction on its UK VAT return as the goods did not enter the UK. However, the sale will be recorded on UK Co’s EC sales list.

    German Co will account for acquisition VAT on UK Co's supply in German Co’s Member State, and as a result, UK Co will not have to register for VAT in Germany (unless it is making other taxable supplies in that country).

    Example 3—the final customer is VAT registered in the UK

    B (German Co) will provide its EU VAT number to A (French Co) so that French Co can zero-rate its supply to German Co. French Co will treat the supply to German Co as an intra-EU dispatch from France

    Popular documents