Intra-community movement: The Value Added Tax -Guide

Intra-Community transfers – what an impressive neologism! After all, a more manageable abbreviation has also been established: i.g. shipment.

But no matter how unwieldy the term may seem, online merchants with EU outbound storage – and their tax advisors – need to get to grips with the topic and should know the most important basics :

• What are intra-Community transfers?
• What (diverse!) tax requirements arise from this?
• Are there solutions for the convenient fulfilment of tax obligations?

This much can be said in advance:

Without fulfilling the tax obligations arising from intra-Community transfers, participating in fulfilment services such as FBA, CEE & Co. can quickly become an expensive pitfall. Fortunately, there are convenient solutions.

Extensive VAT consequences when using foreign warehouses

In the course of internationalisation, online merchants will sooner or later be faced with the question of whether they should also use foreign warehouses.

Marketplaces such as Amazon or Zalando make it easy for you to sell your goods online in other EU countries via local warehouses.

In recent years, industry leader Amazon has established an EU-wide cross-border fulfilment network for its merchants. And Amazon is constantly trying to increase the use of the “Fulfilment by Amazon” programme by offering various incentives to merchants.

Participation in these international fulfilment programmes offers online merchants one or more of the following benefits, depending on the platform:

• Lower shipping costs than shipping from Germany
• Lower storage costs than in Germany
• Reduced delivery time due to storage in your customer’s country

The large marketplaces therefore offer you an – initially very simple and attractive – internationalisation of your sales.

The goods of Pan EU sellers are often relocated many times by Amazon

The focus here has long been on Amazon’s “Pan-European Shipping” (PAN EU) programme. Amazon has already set up numerous warehouses within the European Union (EU) and in the United Kingdom (UK) and is continuing to expand these capacities. FBA sellers can currently use warehouses in the following member states as part of the PAN EU programme:

• Germany
• France
• Italy
• Poland
• Sweden (newly selectable since summer 2021, but currently no local storage possible according to Amazon)
• Spain
• Czech Republic
• UK (Great Britain): currently not included in the programme

In order to be able to sell your products within the framework of pan-European shipping, you must agree that Amazon may dispatch your goods to the countries you have selected.

Activation of pan-European shipping at Amazon automatically leads to tax obligations due to intra-Community transfers (Screenshot Amazon Seller Central)

Once you have agreed to pan-European storage in principle, Amazon can move the goods between the individual warehouse locations practically as often as you like and without involving you again.

The tax consequences resulting from these transfers and relocations when using programmes such as Amazon CEE or PAN-EU are extensive and risky. And they directly affect you, because:

Every transport of your goods from one warehouse to another across EU borders constitutes an “intra-Community transfer” assigned to you for tax purposes.

And you must document and report these movements. We will describe in detail how and where.

From a tax perspective, however, the challenges begin even before you actually utilise these cross-border logistics structures.

So let’s take a look together at the tax obligations you need to fulfil before you start EU relocations.

I.g. shipments result from the use of foreign EU warehouses

The flexible transfer of goods between different warehouses in other EU countries leads to tax registration and reporting obligations in the country of departure as well as in the country of receipt of the goods.

But let’s take a step-by-step look at how the individual processes involved in such a stock transfer should be viewed from a VAT perspective.

The first step when using a foreign warehouse will always be that you – or the marketplace provider such as Amazon on your behalf – move the goods to a foreign warehouse. This involves two transactions that are relevant for VAT purposes.

Let’s take the example of Anton Meier, a merchant from Germany.

Anton Meier delivers goods to a warehouse in Poland because the storage and shipping costs there are lower than for a German warehouse. From there, his goods can be dispatched to the Czech Republic or France, for example – i.e. wherever demand and/or storage capacities require it from the marketplace’s point of view.

In this example, we will now take a closer look at shipments to Poland. However, the following also applies to shipments to all other EU countries.

Intra-Community transfers arise from cross-border storage or stock transfers in EU warehouses

In the country of departure of the goods: Intra-Community transfers or: I deliver to myself

In our example, Anton first has his products shipped by Amazon from Germany to a warehouse in Poland. Subject to certain conditions, which we will discuss below, this is a tax-free supply by Anton from Germany to Poland to himself – a so-called intra-Community transfer.

As the transfer of goods is cross-border, the VAT law acts as if you were delivering the products to yourself, e.g. from Germany to Poland.

As a result, a delivery is faked even though no sale has taken place at the time of the stock transfer.

This fictitious delivery is generally tax-free, so you do not have to pay tax to the tax office.

In order for the tax office to grant you tax exemption for intra-Community transfers and for you not to have to pay tax (retrospectively) for this transfer of your own goods, you must fulfil a number of requirements.

These requirements have been drastically tightened since 1 January 2020 with the introduction of the so-called “quick fixes”. But more on this later.

In the country of receipt of the goods: Intra-Community acquisition

If, in our example, Anton’s goods now reach the Polish warehouse, Anton is making a so-called intra-Community acquisition in Poland from a VAT perspective. This acquisition is taxable and subject to VAT in Poland – currently 23%.

As a result, however, the tax payment burden from this transaction will generally be zero, as our dealer is likely to have an input tax deduction from the intra-Community acquisition in the same amount.

Ultimately, however, the Polish tax authorities know through this procedure that the trader has brought goods to Poland in order to sell them from there.

So far, so good. However, intra-Community transfers and intra-Community acquisitions mean that you must be registered for VAT in both the country of departure and the country of receipt of the goods.

We explain why this is the case and what obligations you have to fulfil in the following section.

VAT IDs are required in both countries for the notification of intra-Community transfers

As can be seen from the example, our trader Anton must submit advance VAT returns for the declaration of intra-Community transfers in both the country of departure and the country of destination (in this case Poland). Depending on the country, this must be done on a monthly or quarterly basis.

You must be registered for tax in the respective country in order to be able to submit advance VAT returns and to receive tax exemption on your aforementioned shipments.

You must therefore have applied for and received a local VAT ID. However, this can take many weeks in some EU countries.

For this reason, you should be registered for taxin the relevant countries in good time before you ship your goods there – orhave them shipped by Amazon, Zalando & Co.

Intra-Community transfers without a VAT ID in the respective country of destination can be very expensive

In addition to other requirements, intra-Community transfers are only tax-free in the country of origin if the recipient, i.e. the trader himself in the country where the goods are stored, has a valid VAT ID there at the time of the transfer.

Otherwise you will have to pay tax on transfers – i.e. deliveries to yourself that do not generate any income!

A local tax number, as issued in the past in some EU countries for foreign traders, is no longer sufficient to obtain tax exemption on the above-mentioned transfers since the tightening of tax regulations with the introduction of the so-called “quick fixes” in 2020.

The following example quantifies the problem:

A Pan EU trader with an annual turnover of 5 million euros who is not registered for tax in the six Pan EU states with their own VAT IDs will have to pay an average of 500,000 euros in VAT on their shipments – per year.

How and where do I declare i.g. shipments?

The tax declaration of the intra-Community transfer is made both in the country of departure and in the country of destination, in our example in Germany and Poland, in the advance VAT returns. We will show you below what exactly you need to declare and where.

Declaration of the intra-Community transfer in the advance VAT return in the country of departure

In the German advance VAT return, you report the net amount of the tax-free intra-Community delivery in field 41

In the country in which the transfer starts – here in Germany – you declare the tax-free intra-Community supply (transfer). You enter the cumulative purchase prices of all goods transferred in a month or quarter in field 41 of the advance VAT return.

Declaration of intra-Community acquisition and input tax deduction in the receiving country

Declaration of the intra-Community acquisition in the Polish advance VAT return with simultaneous deduction of input tax (symbolic representation using the German VAT return form and with EUR amounts)

In the country in which the transfer ends – in this case Poland – you declare the taxable intra-Community acquisition in the advance VAT return there and at the same time claim the input tax deduction, so that the balance is basically zero.

The assessment basis is again the purchase prices, which you would still have to convert into zloty in the case of Poland. (Note: We have not done this here for didactic reasons in order to show that the 100,000 euros you declare in Germany should also correspond to 100,000 euros in Poland in order to avoid enquiries from the Polish tax office).

A standard tax rate of 23% currently applies in Poland. For reasons of clarity, we have not used a Polish advance VAT return (UStVA), but a symbolic German UStVA with Polish tax rates.

Special feature in Poland: Without the submission of JPK declarations, there is a high risk of i.g. shipments

We regularly receive enquiries like this from new customers:

This problem is now well known and, thanks to Taxdoo, has also been addressed in one of the leading magazines focussing on digital topics – t3n.

Poland is one of the first countries in which online traders had to submit a declaration based on all transactions in addition to a traditional VAT return – the so-called JPK declaration.

Extract from a file with data for the JPK notification in Poland

Since October 2020, the JPK declaration has completely replaced the conventional VAT return in Poland. This is likely to further exacerbate the tax challenges for Amazon Pan EU and CEE merchants, for example.

If you do not submit these monthly JPK declarations, the tax office in Warsaw will deactivate your Polish VAT ID number within a short period of time.

This means that your shipments to Poland will be subject to tax (see above) – even if you appear to have done everything correctly.

What do traders have to document for the tax office in the case of intra-Community transfers?

The construct of the tax-free intra-Community supply is unfortunately very often used for a fraud model – the so-called carousel transactions or missing traders. Behind this are professional criminal structures that evade sales tax in the tens of billions every year.

Source: https://www.europol.europa.eu/crime-areas-and-trends/crime-areas/economic-crime/mtic-missing-trader-intra-community-fraud

For this reason, such deliveries are subject to high documentation and verification requirements vis-à-vis the tax authorities.

Whenever you make a VAT-exempt delivery, the tax office will take a close look and check whether you were actually allowed to claim the tax exemption in accordance with the German VAT Act (UStG). In this respect, you must properly document and prove your tax-free intra-Community transfers.

If your tax-free intra-Community supplies/transfers exceed certain thresholds, the tax office will automatically receive a check notification. They will then often write to you or your tax advisor and ask you to provide evidence of the reported tax-free deliveries.

German tax authorities are increasingly requesting proof of shipments from online merchants via fulfilment platforms such as Amazon

What do you need for proof of tax-free intra-Community transfers?

Pro forma invoice as proof for each i.g. shipment

In the case of tax-free intra-Community transfers, a so-called pro-forma invoice must be drawn up for each individual transfer operation.

In the case of intra-Community transfers, the pro-forma invoice serves not only as proof of accounting, but also as proof of receipt, as there are no classic entry certificates in the case of intra-Community transfers.

The pro forma invoice is an invoice in which you are listed as the sender with your German address and German VAT identification number.

At the same time, however, you are also the invoice recipient with the address of the warehouse in the receiving country (℅) (in the above example, the address of the Polish warehouse) and your foreign VAT identification number of the receiving country.

This pro forma invoice must contain the minimum information listed in Section 17d (3) UStDV.

The net charge for this invoice is made up of your purchase prices or replacement costs.

Summarised notification is also mandatory for the aforementioned shipments

In order for intra-Community deliveries and also transfers to be exempt from VAT, you must also have reported these in your recapitulative statement (ZM) (according to § 4 No. 1 lit. b UStG). In it, you declare the following information:

• the VAT ID in the receiving country
• the assessment basis
• and the type of turnover

The reason for this is that the data from the VAT return is exchanged throughout the EU. In our example, this data is therefore reported to the Polish tax authorities so that the tax office in Poland can then check whether Anton has reported the same amount there as an intra-Community acquisition.

This ensures that the tax authorities in the EU always have an overview of the whereabouts of your goods – right up to the taxable sale to the end consumer.

Please note: In some countries, there are also recapitulative statements in which you must also declare your intra-Community acquisitions. These are the so-called EC Purchase Lists.

Intrastat declarations

If your intra-Community shipments or intra-Community acquisitions exceed certain thresholds, you must submit additional reports to the respective statistical offices in the form of so-called intra-trade statistics (Intrastat). In Germany, the Federal Statistical Office is responsible for this.

An overview / guide to the Intrastat procedure including references to current threshold values in the EU countries can be found here.

Convenient automatic recording and verification of I.G. shipments – with Taxdoo

Cross-border storage and stock transfers in foreign EU warehouses therefore lead to a large number of tax-relevant transactions (transfers). You must record these individually for accounting purposes and declare them for tax purposes, both in Germany and abroad.

You can do this completely and reliably online with the Taxdoo VAT platform.

Taxdoo can automatically read out all relevant raw data from marketplaces (Amazon, ebay, …) and ERP systems (e.g. JTL and Plentymarkets) and

• provide precisely prepared data on all shipments ,
• Document shipments (pro forma invoices),
• Provide data for recapitulative statements and Intrastat,
• Createaccounting exports (DATEV format),
• Aggregate and export all data for OSS messages
• Submitting tax returns abroad,
• and much more.

Taxdoo can also automatically determine the correct tax rate for each product and each EU country.

Simply click here to arrange your free initial consultation, during which we will personally answer your questions and present the specific benefits of our automated VAT solutions to you and/or your tax advisor.