In its recent ruling in the case “Luxury Trust Automobil GmbH (C-247/21)”, the European Court of Justice (ECJ) determined that the explicit mention of the reverse charge on an invoice is essential for the application of simplified triangulation. Without it, it is not clear that the VAT liability should pass to the customer. A reference solely indicating “triangulation” would not be sufficient.

Furthermore, the ECJ ruled that invoice adjustments may not be made retroactively, since in accordance with the principles of the EU VAT legislation, changes are only effective at the time they are made.

How does triangulation work?

In an inner-EU triangular trade transaction, party A in the supply chain sells goods to Party B, but delivers them directly to the final customer, Party C. Triangulation can only apply if the 3 parties involved are acting under 3 different EU Member State VAT ID numbers, and party A or B organises transport to party C.

The sale from party A to party B will be treated as an intra-Community sale, with party B declaring an intra-Community acquisition under the EU VAT ID number under which he is acting. The sale between party B and party C is a reverse charge sale under the triangulation simplification, whereby party C will self-account for the VAT due in the Member State of arrival of the goods. The sales invoices issued by party A and party B must contain the correct, relevant exemption texts to reflect why no output VAT has been charged to the customer.

Consequences of the ruling for Luxury Trust Automobil GmbH

Where the reference to the reverse charge is missing from the supplier invoice, Party B in the 3 party triangular supply chain would need to VAT register in the EU Member State of arrival of the goods, in order to declare an intra-Community acquisition in that Member State, and a subsequent domestic supply (subject to the current VAT treatment in that Member State for non-established suppliers). Should Party B fails to do so, he will still be obliged to declare non-deductible acquisition VAT in the Member State of issuance of the EU VAT ID number used for the transaction. This is due to the so-called safety net (Article 41 of the EU VAT Directive). The aim of the safety net is to ensure that a given intra-Community acquisition is subject to tax and, secondly, to prevent double taxation in respect of the same acquisition.

Based on the ruling made by the ECJ for Luxury Trust Automobil GmbH, the Belgian Administration has now published an updated circular to incorporate these principles into Belgian VAT legislation (Circular 2023/C/51)

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Should your company be impacted by this issue, or have any questions in relation to triangulation, please feel free to contact us.