Chain and triangular transactions under the VAT Act – taxation principles

1. Chain transactions

In the European Union countries, uniform taxation principles apply to chain transactions.

A chain transaction is one in which several entities deliver the same goods in such a way that the first one issues the goods directly to the last buyer in the order. At least 3 entities participate in a chain transaction.

We can talk about chain deliveries of goods both when the transaction is:

• domestic - only entities registered in Poland participate,
• cross-border - intra-Community delivery of goods (ICS) or export of goods.

Chain transactions can involve not only VAT payers, but also non-taxpayers, which does not change the nature of the transaction. The key issue is to determine which delivery should be attributed to the transport of goods.

Movable delivery

The most important issue in the case of this type of transaction is to determine which delivery is a "movable delivery". A "movable delivery" is one that involves the effects of a cross-border transaction, and is therefore classified as IDT/ICT or export. Assigning a shipment/transport to only one delivery means that it is a "movable delivery". The remaining deliveries in the chain are considered "non-movable", and are therefore treated as deliveries settled as domestic deliveries, according to the rules for a given country. In the context of a "movable delivery", pursuant to Article 22, paragraph 1, item 1 of the VAT Act, the place of supply is the place where the goods are located at the time of commencement of shipment or transport to the purchaser. In relation to a "non-movable delivery", the place of supply depends on whether the non-movable delivery precedes the shipment/transport or follows the shipment/transport of the goods. In principle, in the case of goods that are dispatched or transported from the territory of a country to the territory of a third country or from the territory of one Member State to the territory of another Member State by:

• the first supplier - the dispatch or transport is attributed to his delivery,
• the last purchaser - the dispatch or transport is attributed to the delivery made to that purchaser.

In the event that the transport is organised by the second supplier, i.e. an entity that simultaneously purchases and sells goods, then, as a rule, the first transaction in the chain is a mobile delivery. However, if the transaction is cross-border but intra-EU in nature, then the second delivery will be considered a mobile delivery if the second entity in the chain has provided its supplier with an identification number for intra-Community transactions assigned to it by the Member State from which the goods are dispatched or transported.

In the case of cross-border delivery within the EU and outside the EU, only one delivery in the chain may benefit from the preferential 0% VAT rate.

Importantly, when applying the above general principles, entities may be obliged, depending on their role in the supply chain, to register as VAT payers in other European Union countries. This usually means additional costs and the need to use the services of local tax service companies

2. Intra-Community triangular transactions

Simplified procedure

In the case of intra-EU chain transactions involving three entities registered in three different Member States, using the standard rules would require the registration of one of the participants in another country. Therefore, a simplified procedure was introduced.

The simplified procedure allows VAT to be settled by one entity participating in the transaction, i.e. the last VAT payer in the order settles VAT on the delivery of goods to it by the second VAT payer in the order on a self-calculation basis using the VAT identification number of the Member State in which the transport or shipment ends.

Intra-Community triangular transaction - means a transaction in which the following conditions are met:

• the transaction involves three VAT payers identified for the purposes of intra-Community transactions in three different Member States;
• the triangular transaction concerns deliveries of the same goods;
• the goods are delivered by the first of the taxpayers directly to the last in the order, whereby it is assumed that the delivery of these goods is made between the first and second taxpayers and the second and last taxpayers in the order, and therefore the flow of goods is detached from the flow of invoices documenting the transaction;
• the goods are dispatched or transported by the first VAT payer or transported by the second VAT payer in the order or on their behalf from the territory of one Member State to the territory of another Member State.

To apply the simplified procedure, it is necessary to meet certain conditions, therefore, if you have difficulties or doubts in identifying obligations in chain or triangular transactions, use the support of PKF experts.