What if your international Customer doesn't have a VAT Number?By Toon Hasselman, Limes international
When an EU taxable person makes a supply of goods or services to a customer in another EU member state, he normally asks his customer to provide a VAT number in order to dispense with charging the local VAT. One may wonder whether this is a legal obligation. This is especially interesting if the customer is clearly a taxable person according to the doctrine of the supplier's country, but is nevertheless unable to provide a VAT number.
In case of intracommunity supplies of goods, the customer's status of taxable person allows the supplier to apply the exemption or zero rate. In case of intracommunity services, the customer's status of taxable person allows the supplier to treat the service as subject to VAT in the customer's country. The technique is a bit different but the result is the same; no VAT is charged by the supplier. The use of the customer's VAT number only serves a kind of proof that he is indeed a taxable person.
One should remember that the VAT Directive 2006/12 not only requires that the customer's VAT number is mentioned in the invoice, but also that this VAT number is reported separately in order to be relayed to the tax authorities in the customer's member state. This allows the authorities to monitor whether the reverse charge is correctly applied. In other words, the VAT number only has an administrative function and not complying with these regulations is only enforced with administrative sanctions.
In a recent opinion in Case C 587/10, Advocate General Cruz Villalón opinions that the VAT number is not essential for the application of the exemption for an intracommunity supply. If this view is accepted by the Court, this should in my view also mean that the VAT number is not essential for establishing the place of supply in case of services. This would recognize that the tax status of the recipient of a supply is decisive, and that his VAT number is certainly important as a means of evidence but not essential.
It is of course true that the new rules only work nicely if each customer who qualifies as a taxable person can show a VAT number. However, practice shows that this is not always the case, for example because a specific exemption applies to the customer or because the customer is not regarded as taxable person in his own member state but indubitably qualifies as such according to the doctrine of the supplier's member state. In case of supplies of goods, such a situation does not often occur. In our experience, this is much more often the case in the case of intracommunity services. The VAT Directive 2006/112 nor the Implementing Regulation 282-2011 provide any specific guideline on the topic.
Admittedly, Article 18 (1) (b) and (2) of the Implementing Regulation seems to deal with the subject, but this provides little comfort in our example. Article 18 (1) (b) allows the supplier to treat the service as an B2B-service when the customer indicates that he has "not yet received" a VAT number, while Article 18 (2) allows the supplier to treat the service as an B2C-service if he can show that the customer "has not communicated" his VAT number. That will not help where the customer believes that he is never going to obtain a VAT number.
The tax service may be expected to assume that, since the customer is established in the EU and the supplier has no VAT number, the supplier has no option but to invoice the VAT of his own member state. The exceptions of the Implementing Regulation being applicable, they are sure to impose an appropriate VAT assessment if the supplier has not accounted for the VAT.
Personally, I believe that the VAT Directive allows suppliers to invoice such customers without local VAT. (Assuming that they mention in the invoices something like: "No VAT – international service – reverse charge applies") The rules nowhere expressly state that the supplier can only refrain from invoicing VAT if he has the customer's VAT number (other than when Article 18 (1) (b) of the Regulation applies). The burden of proof that the customer is indeed a taxable person lies with the supplier, but if that cannot be seriously doubted according to the doctrine in the supplier's member state he should be in the clear.
Again, we should keep in mind that the VAT number is just one of the methods to satisfy that burden of proof, it is certainly not the only one. Unfortunately, the system of administrative requirements as prescribed by the Directive has simply not been properly adapted to the new rules, which should be the tax service's problem, not the supplier's. The tax service may of course expect the supplier to file the special report of intracommunity services, though this will in the case at hand contain little more than the customer's address plus perhaps a copy of the invoice for good measure. That will make it difficult to relay information automatically, so they will just have to write a separate message.
Of course, the tax service will not like that and I expect that they will express doubt as to the tax status of the customer only in order to be able to resist that view. It has taken several court cases before the authorities in some EU member states began to realize that they had to chance the system for intracommunity supplies of goods. The national rules were indeed changed in the countries and the VAT number became legally a formal condition for the zero-rate or exemption. Whether this is compatible with the VAT Directive can now be doubted. A bit surprising therefore, that in the same member states no similar formal condition was introduced for services. I have no doubt that in a few years – perhaps after a few court cases - the same will happen eventually for intracommunity services, if the European Court does not follow the Advocate General and puts a stop to it.
LIMES international, Netherlands
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