Czech Republic: Trade in goods between EU Member States in relation to QUICK FIXES
QUICK FIXES aim to unify the rules for B2B merchandising in the EU. The Czech Republic has already started the process of implementing EU legislation in relation to QUICK FIXES in the Czech VAT Act. Changes compared to the current regulation will be particularly important in the Czech Republic for handling goods in the call-off stock. Other changes usually just specify the existing practice.
According to the current EU Council Directive No. 2018/1910 and the EU Council Implementing Regulation No. 2018/1912 (the “European Legislation”), QUICK FIXES apply to the following areas:
- consignment stocks (“call-off stock”);
- assigning transport to chain stores;
- verification of the customer tax ID via VIES;
- proofing of VAT exemption for intra-community supplies of goods.
Below I present a comparison of the current situation, which will apply at least until 31 December 2019, and the situation as of 1 January 2020.
According to current practice, even if the implementation of QUICK FIXES in the Czech VAT Act will be delayed, Czech taxpayers will have the opportunity to use the direct effects of the European Legislation.
Ad a) Call-off stock
There is only one brief paragraph dealing with this issue in the current version of the VAT Act. The interpretation of this provision and administrative practice was agreed by the representatives of tax advisors and financial management at the regular Coordination Committee meeting in 2004.
According to this interpretation (simplified):
- this regime will only be used if the customer of the relocated goods is known beforehand and this customer has a Czech VAT ID for the purposes of intra-community trade in relation to VAT;
- the fiction of the acquisition of goods from another Member State occurs as soon as the goods are stored in the Czech warehouse;
- the subsequent withdrawal of goods from the Czech warehouse by this customer is no longer considered a taxable supply in terms of VAT;
- the moment of the chargeable event when acquiring goods from the EU is governed by the general principles, i.e. (a) on the date of issue of the invoice (i.e. the transfer document), or (b) on the 15th day of the month following the month in which the goods were moved, if the invoice was issued after that date;
- a credit note is issued for returned goods to the same EU country from which the goods were originally moved.
The above interpretation will cease to apply from 1 January 2020. According to the forthcoming amendment to the VAT Act, from the New Year, the European Legislation on this issue should begin to apply unchanged.
Again very briefly (in detail here):
- this regime will be used by the VAT-registered supplier for intra-community transactions abroad only if the Czech customer of the transferred goods is known in advance and this customer has a VAT ID for the purposes of intra-community trading;
- relocation in the call-off stock will be reported by the supplier in the summary report; the supplier and the customer will have to keep VAT records according to the European Legislation;
- acquisition of goods from another EU Member State will be reported by the given customer in the Czech VAT return as of the date of removal of the goods from the warehouse, but no later than in the 12-month period from the storage;
- in the event of a breach of conditions (removal of goods by another customer, return to a Member State other than the original one, destruction, non-removal of the goods by the given customer within the specified period), the foreign supplier transfers the goods in the Czech Republic.
Ad b) Assignment of transport at chain stores
The current wording of the VAT Act does not contain any provision specifying the allocation of transport to chain stores.
This status records both the financial administration in questionable cases, and fraudsters in confusing resale of goods within a single shipment. The main guidance is provided only by the case law of the Court of Justice of the European Union (C-245/04 EMAG, C-430/09 Euro Tyre, C-386/16 Toridas, etc.). In disputable cases, however, many years of litigation is conducted, in which the property of Czech VAT payers is also secured.
According to the proposed amendment to the VAT Act, the rules provided by the European Legislation should be applied from 1 January 2020.
Carriage within chain stores will be assigned to the transaction between the supplier and the intermediary. The shipment may be assigned to that intermediary only if it communicates to the supplier its VAT ID assigned by the Member State of departure or shipment. An intermediary is a person who is not the first supplier and who dispatches or transports the goods by itself or via a third party which it has authorised.
Ad c) Verifying VAT number through VIES
Since the Czech Republic’s accession to the EU (2004), the Czech VAT Act permits suppliers to exempt intra-community supplies of goods from the Czech Republic only for persons registered for tax in another EU Member State.
It follows that the verification of customer IDs via the VIES application is currently a material and legal condition in the Czech Republic.
It is possible to derogate from this obligation only in exceptional cases that coincide with the case law of the Court of Justice of the EU (e.g. C-24/15 Ploecki or C-587/10 VSTR) . However, such a derogation would only be confirmed in court proceedings.
Nothing will change in the Czech VAT Act in this regard from 1 January 2020.
Ad d) Proof of VAT exemption for intra-community supplies of goods
The current administrative practice consists mainly of Czech case law. In the current wording of the VAT Act, we only find mention that the intra-community delivery of goods can be proven by the buyer’s statutory declaration. According to Czech case law, however, this statutory declaration serves only as supporting evidence.
Internationally recognised transport documents, such as a CMR document, are the most commonly accepted evidence by the financial administration.
In case of riskier intra-community supplies, i.e.
- own transport by the supplier for “long” delivery terms, and
- own transport by the customer for “short” delivery terms
it is recommended to exercise great caution. Unfortunately, neither the practice of the Czech courts nor the financial administration provides a methodology for how to proceed or what documents suffice to enforce the exemption. But one thing is certain: In case of insufficient defence of the fact that the goods were indeed transported across the border, this exemption will be retroactively rejected, and Czech VAT will be charged, including related sanctions.
From 1 January 2020, the Czech financial administration will accept the documents listed in the European Legislation for demonstrating transport (more details here).
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