Q: My clients recently gained a contract to provide quality handbags to boutiques in Spain. The handbags are purchased from Italy and either directly delivered from the manufacturers, or from a small stock held in Spain at a distribution warehouse. Do they need to register in Spain?
A: In these circumstances you have two separate movements for VAT purpose. Where goods are delivered directly, this is a triangulation movement. When goods are held as consignment stock in Spain, the place of supply is Spain as that is where the goods are located. The client may need to register for VAT there.
Triangulation is a simplification procedure that can be used to avoid multiple territory VAT registrations. It can be used when three parties located in separate European community countries are involved in a goods transaction and are registered for local VAT in their respective countries.
In your scenario, the clients sell goods to their business customers in Spain, however the goods are sent from the Italian manufacturer direct to the Spanish business customer. There is only one movement of goods; that is from Italy to Spain, but two supplies for invoicing purposes.
The first invoice in the triangulation will be from the Italian company to the UK business. Since both companies are in business and in the European Community, the invoice from the Italian company will be zero-rated on the receipt of your UK VAT number.
The second invoice in the chain will be the invoice to the Spanish customer. This invoice can be zero-rated on receipt of the Spanish customer’s local VAT number. The invoice should bear a legend advising that it forms the intermediary leg in a triangular transaction, and that the simplification applies.
The Spanish customer will be then able to self-account for VAT on the acquisition, rather than the UK business having to VAT register there.
Both the client and the Italian company will be required to submit EC sales lists.
Consignment stocks are goods that a business transfers between European Union countries in order to meet future orders. The important feature is that the movement of the goods occurs before a customer has been found for them. Consignment stocks are treated as a transfer of own goods for VAT accounting and reporting purposes. Subject to the registration turnover thresholds, normally anyone moving stocks to another EU country will need to register there in order to account for VAT on the acquisition of the goods and on the subsequent supply. But as an alternative to registering for VAT, you may opt to use the services of a local VAT-registered agent. In that case the goods may be treated as supplied to and acquired by the agent and supplied on by them when a customer is eventually found. The owner will be able to zero-rate their supply to the agent from their own member state by quoting the agent’s UK VAT number.
Ben Chaplin is managing director of Taxwise