EU triangulation: transport and non-taxable operations

EU VAT triangulations imply the need to demonstrate the actual realization of the operation in order to avoid possible frauds. The fact that in such intra-EU triangular transactions the first two operations are exempt, while the third operation is taxed in the destination country, requires a careful analysis of the role of transport.

On many occasions, the European Court of Justice pointed out that the close correlation between the carried out transaction and the transport of goods to another Member State allows to apply a non-taxability system to the first operation. However, the Court interpretation of intra-EU triangulations raises many problems concerning the correct identification of the operation which the transport refers to and of the operations that can possibly benefit from non-taxability.

The transitional system of intra-EU trade, as outlined by Directive 91/680/EEC dated 16 December 1991, did not take into account chain transactions between taxable entities located in different Member States, while Directive 92/111/EEC dated 14 December 1992, so-called nettoyage, introduced simplifications relevant to triangulations, meant as transactions involving three Member States.

This was aimed at reconciling a system based essentially on transactions involving two Member States with a more agile system that took into account real cases and avoiding the obligation to appoint a tax representative (or to register for VAT purposes) in more Member States, thus bearing increased costs and more complex operating procedures.

Currently, VAT Directive 2006/112/EC dated 28 November 2006 regulates triangular transactions between economic operators (first supplier, buyer/seller – intermediate supplier – and final customer) located in different Member States. This structure implies that goods being sold in the first Member State are shipped/delivered in the Member State of destination, where there is the final taxable client that is the subject liable to pay VAT designated by the intermediate supplier.

For more information, contact Mario Spera.