Navigating the complexity of EU VAT triangulation

What is triangulation?

Many multi-national companies operating across the EU make use of the “triangulation simplification”. This removes the burden to VAT register in different Member States into which goods are delivered.

Under normal EU VAT rules, without the triangulation simplification, Party B (the intermediate supplier) would ordinarily be required to register for VAT in Member State C to account for an intra-Community acquisition. It would then make an onward local supply of goods to its customer, Party C, in Member State C.

Basic rules surrounding the triangulation simplification

The following conditions must be met for the triangulation simplification to apply :

• There are three different parties (i.e. separate taxable persons) VAT registered in three different EU Member States
• Goods are transported directly from Member State A to Member State C
• The invoicing flow involves Party A selling the goods to Party B (the intermediate supplier)
• The intermediate supplier in turn invoices its customer, Party C (in Member State C)
• Party B must obtain from Party C a valid VAT ID from the Member State of destination, and quote this VAT ID on its invoice; and
• Party B must quote “Article 141 simplification” on its invoice to Party C

A more complex triangulation scenario

A question that is often asked is whether or not the triangulation simplification is still available in the following circumstances:

• where Party ‘B’ is VAT registered in the destination Member State, or
• where Party ‘B” is VAT registered in the Member State of dispatch, or
• where Party “C” (the end-customer) picks up the goods from Party ‘A’, or arranges his own transport to the destination country

As is often the case with EU VAT rules, the answers to the above questions are not straightforward; yet the legal and practical impact can be significant.

For a detailed insight into complex EU triangulation scenarios, download our Guide : Navigating the complexities of EU VAT triangulation

ERP considerations

It is best practice to ensure that the system automatically determines the VAT treatment of sales transactions that potentially fall within the triangulation simplification. After all, it is very unlikely that sales order staff will have the requisite depth of knowledge to understand the nuances of the EU VAT rules in this area. It is far better, to have the system automatically detected when triangulation can no longer apply and where it is necessary to report a domestic transaction (either in the Member State of dispatch or destination).

For further information, on how it is possible to achieve fully automated tax determination for triangulation sales (as well as other sales and purchase transactions) within SAP please contact us.