HMRC has published an explanation of changes to EU Law relating to the VAT rules for cross-border transactions between member states, and publishes draft legislation and guidance.

The changes will be enacted into UK law through a new Schedule 4B to the Value Added Tax Act 1994 and a new Regulation 22ZA to the VAT Regulations 1995 together with some consequential amendments to existing legislation.

The Government intends to include this measure in the next Finance Act. The measure will apply, subject to the conditions in the legislation, in cases where goods are removed from an EU country on or after 1 January 2020 (the legislation will therefore have a retrospective element). This means that businesses will be able to take advantage of the new arrangements from 1 January 2020.

Where the new legislation is due to apply, businesses are invited to account for VAT and complete VAT returns, records and European Sales Statements, in accordance with its provisions, from 1 January 2020. Once the next Finance Act receives Royal Assent, VAT accounting, returns and reporting in accordance with the new legislation, where it applies, will be required in law in respect of goods removed from an EU country on or after 1 January 2020, and taxpayers will be required to correct returns where this has not been done.

The HMRC guidance is reproduced in full below.

1. Call-off stock

Call-off stock refers to goods transported by a supplier from a Member State of origin to a Member State of destination. At the time of the transport of goods, the supplier already knows the identity of the person to whom these goods will be supplied (called-off) at a later stage and after they have arrived in the Member State of destination. That person is referred to in this guidance as ‘the customer’.

Member States have taken different approaches to how call-off stocks are accounted for and these changes are intended to provide for a common approach.

The current approach normally gives rise to a deemed supply in the Member State of origin and a deemed intra-community acquisition in the Member State of destination by the supplier, followed by a ‘domestic’ supply to the customer in the Member State of destination when the goods are called-off. This means the supplier has to become VAT registered in the Member State of destination.

The new rules avoid this by allowing the intra-community supply of the goods to be treated as occurring when the goods are supplied to the customer in the destination Member State. This is subject to certain conditions.

There is no obligation on a business to structure transactions so as to meet the conditions and fall within the new rules. Businesses who do not meet the conditions and so do not fall within the new rules should continue with the current VAT accounting mechanisms for EU cross-border transactions.

The UK’s current policy approach allows the customer to account for the acquisition when the goods first arrive into the UK and before being called-off. This removes the need for the EU supplier to register for VAT in the UK.

2. Overview

To avoid the need for the supplier to register for VAT in the Member State of destination, Article 17a of Directive 2006/112/EC sets out the new rules which permit the intra-community supply of the goods to be treated as occurring when the goods are called-off and the final supply is made to the customer.

That means that the physical movement of the goods from the Member State of origin to the Member State of destination does not give rise to an intra-community supply. The goods that are held as call-off stock in the Member State of destination are considered, for VAT purposes, to still be within the scope of VAT in the Member State of origin.

The intra-community supply is when the goods are called off by the customer. At that point, the normal VAT accounting rules for a cross border sale of goods apply, that is the customer accounts for acquisition tax.

Businesses must comply with a number of conditions if they want to take advantage of this simplification. These are set out below.

The rules include situations when call-off stock treatment is deemed to be terminated. Termination of treatment prior to the goods being called off may give rise to a requirement for the supplier to register for VAT in the Member State of destination and to bring the goods to account as an acquisition of own goods.

The force of law conditions in Notice 725 will be modified to apply to call-off stock arrangements. In the meantime, some parts of this guidance have force of law.

3. Force of law amendments

Paragraph 4.4 of Notice 725 is amended as follows:

These two paragraphs, including the, bullets have force of law.

Where goods are removed from the UK and the conditions set out in paragraph 4 of this guidance apply, the time limit for getting valid evidence of removal is 3 months from the time the goods leave the UK.

In all other cases, the time limits for removing the goods and getting valid evidence of removal will begin from the time of supply. For goods removed to another Member State the time limits are as follows:

• 3 months (including supplies of goods involved in groupage or consolidation prior to removal)
• 6 months for supplies of goods involved in processing or incorporation prior to removal.

4. Conditions

In order for the new simplified rules for call-off stock arrangements to apply, certain conditions must be met. The key conditions are that at the time of removal of the goods from the Member State of origin to the Member State of destination by or under the directions of the supplier:

• a call-off stock agreement is in place with the customer
• the supplier is removing the goods to the Member State of destination with the intention of supplying those goods to the customer there after their arrival in the Member State of destination
• the supplier does not have a business establishment or other fixed established in the destination member State
• the customer is VAT registered in the Member State of destination and the supplier knows the customer’s identity and VAT registration number
• and the supplier records the removal of the goods in the register referred to in prescribed record are maintained section below
• and the customer’s VAT registration number in the Member State of destination is reported on the supplier’s EC sales list

5. Call-off stock agreement

A call-off stock agreement is a contract between a supplier and its customer, which entitles the customer to call the stock off – that is, to take ownership of the goods.

For the purposes of applying the new rules, it is recommended that the contract also provides that:

• the supplier will remove the goods goods from the Member State of origin to the Member State of destination
• the goods are to be located in the Member State of destination when they are to be called-off

A contract that simply provides for the goods to be made available on the demand of the customer but does not set out how that is to be achieved or where the goods are to be stored before they are made available does not provide evidence that the conditions for the new simplified rules are met.

Contracting parties are recommended to have an express provision in the contract to state whether or not it is a contract to which the parties wish Article 17a of Directive 2006/112/EC to apply.

6. Established and business establishment

For the purposes of these rules a business is said to be established if:

• the business is registered in a Member State under similar arrangements to registering at Companies House in the UK
• the business (whether or not related to the call-off stock arrangements) is conducted from premises through the presence of the means to conduct that business
• the warehouse where the call-off stock is to be located is owned (or rented) and directly run by the supplier with his own employees

A VAT registration does not of itself constitute being established or having a fixed establishment.

Ownership of the warehouse which is operated by an independent third party does not of itself constitute being established or having a fixed establishment.

7. Prescribed records are maintained

As a condition of the application of the new simplified rules, the supplier must record in a register (the Call-off Stock Register) the transfer of stock to the Member State of destination under the call-off stock arrangements.

When the goods are physically removed to the Member State of destination, a record must be made of the transfer of the goods. The Call-off stock Register must also be kept up to date, and it must record when goods are called off.

The information that must be contained in the Call-off stock Register is set out in Article 54a of Council Implementing Regulation 282/2011 (the “Implementing Regulation”). The Implementing Regulation is directly applicable, so no further legislation is required to implement it into UK law – it will apply in the UK from 1 January 2020.

The Implementing Regulation requires the supplier’s Call-off Stock Register to record:

1. the Member State of origin and the date of dispatch or transport of the goods
2. the VAT registration number of the customer in the Member State of destination
3. the Member State of destination, the VAT registration number of the warehouse keeper, the address of the warehouse at which the goods are stored upon arrival and the date of arrival of the goods in the warehouse
4. the value, description and quantity of the goods that arrived in the warehouse
5. the VAT identification number of the taxable person substituting for the customer, where the Substitution Rule conditions are satisfied
6. the date on which the goods are called-off by the customer in accordance with the conditions for the simplified treatment the taxable amount, description and quantity of the goods so called-off by the customer and the customer’s VAT registration number in the Member State of destination
7. the taxable amount, description and quantity of the goods affected by a relevant event and the date of the relevant event
8. the value, description and quantity of the returned goods and the date of the return of the goods as referred to as Returned Goods

The Implementing Regulation requires the customer’s Call-off Stock Register to record:

1. the VAT registration number of the supplier of the goods subject to the call-off stock arrangements
2. the description and quantity of the goods intended for him
3. the date on which the goods intended for him arrive in the warehouse
4. the taxable amount, description and quantity of the goods supplied to him and the date on which the customer’s intra-community acquisition of the goods is made
5. the description and quantity of the goods, and the date on which the goods are removed from the warehouse by order of the supplier
6. the description and quantity of the goods destroyed or missing and the date of destruction, loss or theft of the goods or the date on which the goods were found to be destroyed or missing

Where the customer is not the warehouse keeper, so will not necessarily have access to all the information, their Call-off stock Register does not need to contain the information referred to in points (3), (5) and (6).

The following sentence has the force of law.

A supplier which dispatches goods from the UK must preserve the records it keeps in the Call-off Stock Register for 6 years.

The following sentence has the force of law.

A customer which calls-off goods in the UK must preserve the records it keeps in the Call-off Stock Register for 6 years.

Contracting parties are recommended to set out in the contract(s) how they intend to fulfil the record keeping requirements, including how the necessary information is to be communicated between the parties.

If you fail to make or retain the required records, you may be liable to a penalty.

8. EC Sales List

When call-off stocks are sent from a Member State of origin to a warehouse or a customer’s storage facility in a Member State of destination, this must be recorded in the supplier’s EC Sales List.

The information that must be supplied on the EC Sales List is:

• the customer’s country code
• the customer VAT Registration Number
• the call-off stock indicator.

If there has been a change in the intended customer during a period under the substitution rule. The supplier must record the following information on its EC Sales List for that period:

• the original customer’s country code
• the original customer’s VAT Registration Number
• the new customer’s country code
• the new customer’s VAT Registration Number
• the call-off stock indicator for a change in intended customer

If call-off stocks are returned to the Member State of origin without being called-off under the rules for returned goods. Then the following information must be recorded in the supplier’s EC Sales List for the period in which the goods were returned:

• the customer’s country code
• the customer VAT Registration Number
• the call-off stock indicator for returned goods

No values should be entered on an EC Sales list where the entry relates to call-off stocks.

9. Calling-off

The treatment described below applies subject to meeting conditions that:

• the supply is made within 12 months of the arrival of the goods in the Member State of destination
• there has not been a prior relevant event

When the goods are called-off by the customer the supplier makes the supply of the goods to the customer for VAT purposes. This supply should be treated as giving rise to the intra-community transaction at that time. This means that the supplier makes a supply of the goods in the Member State of origin and the customer acquires the goods for VAT purposes in the Member State of destination.

The normal time of supply and VAT accounting rules as set out in Notice 725 will apply.

This includes the requirement to make the normal EC Sales List declaration for such a supply.

In addition, the Call-off Stock Register should be updated to record the call-off of the goods by the customer.

10. Events which trigger an ‘acquisition of own goods’

10.1 12-month rule

Stock is permitted to be held in the Member State of destination pending call-off for up to 12 months from arrival into the Member State of destination. For all practical purposes, the date of arrival into the warehouse can be used as that date.

Where stock, for example commodities, is handled on a last-in first-out basis then this can be treated as though first-in, first-out were in operation and the Call-off Stock Register can be maintained on that basis.

If 12 months pass from the date of arrival of the goods in the Member State of destination without the goods being called off by the customer there is deemed to be:

• a supply by the supplier of the goods in the Member State of origin
• an acquisition by the supplier of the goods in the Member State of destination (an acquisition of own goods)

Any subsequent supply of the goods by the supplier will be in the Member State of destination (businesses should confirm the treatment with the relevant authorities in the Member State in question).

The deemed supply and deemed acquisition occurs on the day after the 12-month period ends. The normal time of supply and VAT accounting rules as set out in and Notice 725 will apply.

This includes the requirement to make the normal EC Sales List declaration for such a deemed supply.

10.2 A relevant event

A relevant event is:

1. the supplier no longer intends to supply the goods to the original customer
2. the supplier intends to supply the goods to the customer in a place other than the Member State of destination
3. the supplier establishes a business establishment or other fixed establishment in the destination Member State
4. the customer ceases to be VAT registered in the Member State of destination
5. the supplier removes the goods from the Member State of destination other than to return them to the Member State of origin
6. the goods are destroyed, lost or stolen

Where a relevant event occurs, there is deemed to be:

• a supply by the supplier of the goods in the Member State of origin
• an acquisition by the supplier of the goods in the Member State of destination (an acquisition of own goods)

Any subsequent supply of the goods by the supplier will be in the Member State of destination (businesses should confirm the treatment with the relevant authorities in the Member State in question).

The normal time of supply and VAT accounting rules as set out in and Notice 725 will apply.

This includes the requirement to make the normal EC Sales List declaration for such a deemed supply and acquisition.

10.3 Substitution rule

The substitution rule permits the supplier to decide not to supply the call-off stock to the original customer but, instead, to supply it to a different customer (‘the substitute customer’) without triggering an acquisition of own goods by the supplier under the rules for relevant events.

Certain conditions apply:

• the supplier must decide not to supply the goods to the original customer and at the same time decide to supply them to the substitute customer
• the substitute customer must at that time be registered for VAT in the Member State of destination
• the supplier must include the substitute customer’s VAT registration number in its EC Sales List
• the supplier must record the intention to supply goods to the substitute customer in the Call-off Stock Register

The introduction of a substitute customer does not change the application of the 12-month rule which applies to the goods and not to the customer.

The substitution can be in respect of the whole amount of the goods held, or in respect of part of the goods.

Example

A customer’s business is taken over by another taxable person. That person may become the substitute customer where the conditions are met.

There are several call-off customers for the same type of goods and the stock when initially sent is allocated appropriately to each customer in the Call-off Stock Register.

However, one customer requests call-off for an amount greater than that recorded in the Call-off Stock Register.

The substitute customer rules will, where the conditions are met, apply to any additional stock that is called off by a substitute customer in these circumstances.

10.4 Returned goods

Call-off stock may be returned to the Member State of origin by the supplier without giving rise to an acquisition of own goods by the supplier under the 12-month rule or the relevant events rule.

This is conditional on:

• the goods being returned to the Member State of origin by or under the direction of the supplier during the 12 month period beginning with their arrival in the Member State of destination
• the Call-off Stock Register being updated accordingly

It is not necessary for the goods to be returned to the premises of the supplier as the goods may have been sold to another person in the Member State of origin.

Where this is the UK, as the goods are still considered to be within the scope of UK VAT, any supply to another UK business that involves the goods being transferred back to the UK will simply be a UK domestic supply.

In addition, the return of the goods must be reported on an EC sales list by the supplier.