Saviour Bezzina 15 October 2014 VAT Treatment of Cross Border Supplies of Goods – Application of Simplification Procedures

Agenda 1. Cross Border Supplies – General Principles 2. Chain Transactions/Triangulation 3. Triangulation Simplification Procedure 4. Application by EU Member States 2

1. Cross Border Supplies – General Principles 3

1. CBS – General Principles Scenario 1- Normal Cross border Supply Italy Malta Italian VAT registered supplier dispatching goods from Italy to Malta with the customer being a Maltese VAT registered taxable person. 4

1. CBS – General Principles ICS by Italian Supplier POS - Italy – Where the Transport Begins (Item 1 Part 1 Third Schedule VATA/Art 32 EUVD) VAT Treatment – Exempt from Italian VAT (Item 3 Part 1 of the Fifth Schedule VATA /Art 138 EUVD) Compliance – Italian VAT Return (Equivalent of our Box 1) Recap statement (Article 262a of EUVD), Intrastat Dispatch Form. 5

1. CBS – General Principles ICA by Maltese Customer POS - Malta – Where the Transport Ends (Item 1 Part 3 Third Schedule VATA/Art 40 EUVD) VAT Treatment – Reverse Charge Mechanism (Art 20VATA/Art 200 EUVD) Compliance – Maltese VAT Return (Boxes 3 and 9/10) Intrastat Arrival Form. 6

1. CBS – General Principles Article 40 EUVD “The place of an intra-Community acquisition of goods shall be deemed to be the place where dispatch or transport of the goods to the person acquiring them ends. (Malta) ” Item1 Part 3 Third Schedule VATA “1. An intra-community acquisition takes place where the goods are when the transport of the goods to the person acquiring them ends. (Malta) ” 7

1. CBS – General Principles Scenario 2 (Security Net) Italy Spain (MT VAT No quoted by client) Italian VAT registered supplier dispatching goods from Italy to Spain with the customer being a Maltese VAT registered taxable person (not in possession of a Spanish VAT number). 8

1. CBS – General Principles ICS by Italian Supplier POS - Italy – Where the Transport Begins (Item 1 Part 1 Third Schedule VATA/Art 32 EUVD) VAT Treatment – Exempt from Italian VAT (Item 3 Part 1 of the Fifth Schedule VATA /Art 138 EUVD) Compliance – Italian VAT Return (Equivalent of our Box 1) Recap statement (Article 262a of EUVD) Intrastat Dispatch Form. 9

1. CBS – General Principles Article 41 EUVD Without prejudice to Article 40, the place of an intra-Community acquisition of goods as referred to in Article 2(1)(b)(i) shall be deemed to be within the territory of the Member State which issued the VAT identification number (Malta) under which the person acquiring the goods made the acquisition, unless the person acquiring the goods establishes that VAT has been applied to that acquisition in accordance with Article 40 (Triangulation Simplification). If VAT is applied to the acquisition in accordance with the first paragraph (Malta) and subsequently applied, pursuant to Article 40, to the acquisition in the Member State in which dispatch or transport of the goods ends (Spain), the taxable amount shall be reduced accordingly in the Member State which issued the VAT identification number (Malta) under which the person acquiring the goods made the acquisition. 10

1. CBS – General Principles Item 2.1 Part 3 Third Schedule VATA 2. (1) Without prejudice to item 1, when a taxable person makes an intracommunity acquisition on which he is identified as registered under article 10 the acquisition shall be deemed to take place in Malta unless the person acquiring the goods establishes that the acquisition has been treated as taking place in another Member State (Spain) and subject to value added tax in that State in terms of provisions in force under the law of that State corresponding to item 1. 11

1. CBS – General Principles ICA by Maltese Customer POS – Malta or Spain? Both? (Items 1&2 Part 3 Third Schedule VATA/Arts 40&41 EUVD) VAT Treatment – Reverse Charge Mechanism (Art 20VATA/Arts 168, 169 & 200 EUVD – Will Maltese VAT be refunded under the RCM or not? See Joined Cases C-536/08 and C-539/08 (X and Facet/Facet Trading) Compliance – Maltese or Spanish VAT Ret? Both? Will a Spanish VAT registration be triggered? What will be the implications of non registration? 12

1. CBS – General Principles Paras 35 – 36 Joined Cases C-536/08 and C- 539/08 (X and Facet/Facet Trading) “It follows that Article 28b(A)(2) of the Sixth Directive (now Article 41 of the EUVD) seeks, first, to ensure that the intra-Community acquisition in question is subject to tax and, secondly, to prevent double taxation in respect of the same acquisition. However, as has been pointed out in paragraph 32 of this judgment, the application of the corrective mechanism provided for in the second subparagraph of Article 28b(A)(2) of the Sixth Directive (now Article 42 of the EUVD – triangulation simplification procedure) is subject to the existence of the cumulative conditions set out in the final subparagraph of that article.” 13

2. Chain Transactions/ Triangulation 14

2. Chain Transactions/Triangulation UK (B) Transport (Italy  Malta) Italy Malta (A) (C) 15

2. Chain Transactions/Triangulation 3 Member States (Italy, UK, Malta) 3 Taxable Persons (A, B, C) 2 Supplies (A  B, B  C) 1 Transport of goods (Italy  Malta) In respect of which sale is the transport being effected A  B or B  C? Relevant ECJ Cases Case C-245/04 (EMAG) Case C-430/09 (Euro Tyre Holding) (see also Teleos C- 409/04 and VSTR 587/10) 16

2. Chain Transactions/Triangulation Case C-430/09 (Euro Tyre Holding) “When goods are the subject of two successive supplies between different taxable persons acting as such, but of a single intra-Community transport, the determination of the transaction to which that transport should be ascribed, namely the first or second supply.... must be conducted in the light of an overall assessment of all the circumstances of the case in order to establish which of those two supplies fulfils all the conditions relating to an intra-Community supply” What about the rigid approach adopted by various MSs in making the exempt ICS dependent on who organizes the IC transport? 17

2. Chain Transactions/Triangulation Transport A  B (No Simplification) A – EXEMPT ICS POS – Italy (Art 32 EUVD) VAT treatment – Exempt (Art 138 EUVD) Compliance - Italian VAT Return, Recap, Intrastat B - ICA in Malta + subsequent Domestic Supply POS – Malta (Art 40 EUVD – ICA, Art 31 EUVD – Domestic Supply) VAT treatment – Taxable (Art 2 EUVD – both ICA and Domestic Supply) Compliance - Maltese VAT registration, Maltese VAT Return, Intrastat. C - Domestic Purchase in Malta 18

2. Chain Transactions/Triangulation Transport B  C (No Simplification) A – Domestic Supply POS – Italy (Art 31 EUVD) VAT treatment – Taxable (Art 2 EUVD) Compliance - Italian VAT Return B – Domestic Purchase in Italy + subsequent ICS POS – Italy (Art 31 EUVD – Domestic Purchase, Art 32 EUVD – ICS) VAT treatment – Taxable (Art 2 EUVD – DS), Exempt (Art 138 EUVD - ICA) Compliance - Italian VAT registration, Italian VAT Return, Intrastat. C – ICA in Malta 19

2. Chain Transactions/Triangulation Is it possible for B to avoid the additional Italian/ Maltese VAT registration obligation on the basis that A makes an ICS in Italy and C makes an ICA? i,.e given that there is only one movement of goods can the transaction be treated as complete by just these 2 declarations (ICS by A and ICA by B)? (i.e. can B be ignored?) Article 23 states that: “Member States shall take the measures necessary to ensure that a transaction which would have been classed as a supply of goods if it had been carried out within their territory by a taxable person acting as such is classed as an intra- Community acquisition of goods.” Hence it follows that B’s intervention cannot be ignored 20

3. Triangulation Simplification Procedure 21

3. Triangulation Simplification Benefits of the Triangulation Simplification procedure: 1. B’s use of its UK VAT number does not create an ICA in the UK. 2. The ICA effected by B in Malta is exempt from Maltese VAT. Hence it follows that B can effect an ICA in Malta and subsequent domestic supply via his UK VAT Id No without suffering any VAT leakage in the UK and without having to register for VAT in Malta or Italy.... BUT – subject to certain conditions. 22

3. Triangulation Simplification Article 42 EUVD (POS of ICA – Item 2 Part 3 Schedule 3 VATA): “The first paragraph of Article 41 shall not apply (i.e. no ICA in the UK will be created if a UK VAT No is used) and VAT shall be deemed to have been applied to the intra-Community acquisition of goods in accordance with Article 40 (i.e where the transport of goods ends - Malta) where the following conditions are met: (a) the person acquiring the goods establishes (B) that he has made the intra- Community acquisition for the purposes of a subsequent supply, within the territory of the Member State identified in accordance with Article 40 (Malta), for which the person to whom the supply is made (C) has been designated in accordance with Article 197 as liable for payment of VAT (Reverse Charge Mechanism); (b) the person acquiring the goods (B) has satisfied the obligations laid down in Article 265 relating to submission of the recapitulative statement.” 23

3. Triangulation Simplification Article 141 EUVD (ICA exemption in Malta - Item 1 Part 3 Sch 5 VATA ): “Each Member State (Malta) shall take specific measures to ensure that VAT is not charged on the intra-Community acquisition of goods within its territory, made in accordance with Article 40, where the following conditions are met: (a) the acquisition of goods is made by a taxable person (B) who is not established in the Member State concerned (Malta) but is identified for VAT purposes in another Member State (UK); (b) the acquisition of goods is made for the purposes of the subsequent supply of those goods, in the Member State concerned (Malta), by the taxable person referred to in point (a) (B); 24

3. Triangulation Simplification Article 141 EUVD (ICA exemption in Malta): cont. (c) the goods thus acquired by the taxable person referred to in point (a) (B) are directly dispatched or transported, from a Member State (Italy) other than that in which he (B) is identified for VAT purposes (UK), to the person (C) for whom he is to carry out the subsequent supply; (d) the person to whom the subsequent supply is to be made (C) is another taxable person, or a non-taxable legal person, who is identified for VAT purposes in the Member State concerned; (e) the person referred to in point (d) (C) has been designated in accordance with Article 197 (Reverse Charge Mechanism) as liable for payment of the VAT due on the supply carried out by the taxable person (B) who is not established in the Member State in which the tax is due (Malta).” 25

3. Triangulation Simplification How does it work? Conditions: - 3 Different Member States (Italy, UK, Malta) - 3 Taxable Persons established and VAT registered in the respective MSs A established and VAT registered in Italy, B established and VAT registered in UK C established and VAT registered in Malta - 2 Supplies (A  B, B  C) - 1 Transport of goods (Italy  Malta) made in respect of the first supply A  B 26

3. Triangulation Simplification For the triangulation simplification procedure to apply, transport must be in respect of the supply from A to B, otherwise an Italian VAT registration obligation would be created for B in Italy which cannot be avoided by any simplification procedure 27

3. Triangulation Simplification How does it work? A – EXEMPT ICS in Italy POS – Italy (Art 32 EUVD) VAT treatment – Exempt (Art 138 EUVD) Compliance - Italian VAT Return (equivalent of our Box 1), - Recapitulative statement (quoting B’s UK VAT ID No), - Intrastat Dispatch Form 28

3. Triangulation Simplification How does it work? B – EXEMPT ICA in Malta POS – Malta (Art 42 EUVD) VAT treatment – Exempt (Art 141 EUVD) Compliance - UK VAT Return (equivalent of our Box 1), - Recapitulative statement (quoting C’s MT VAT ID No and ticking the Triangulation tick box), - No need for Maltese VAT registration (Art 12? Theory vs practice) 29

3. Triangulation Simplification How does it work? B – Subsequent domestic Supply to C in Malta POS – Malta (Art 31 EUVD) VAT treatment – Taxable (Art 2 EUVD) Compliance - Reverse charge Mechanism – onus shifted on C – hence no Maltese VAT compliance obligations for B in Malta (Art 197 EUVD) 30

3. Triangulation Simplification How does it work? C – Domestic purchase from B in Malta POS – Malta (Art 31 EUVD) VAT treatment – Taxable (Art 2 EUVD) Compliance - Reverse charge Mechanism – onus shifted on C – hence C to account for Maltese VAT in the Maltese VAT Return under the Reverse charge Mechanism (Art 197 EUVD) 31

3. Triangulation Simplification Maltese VAT Legislation wording via – a – vis B’s activities in Malta and the respective VAT registration Obligations Article 10.4 – “A taxable person who is not established in Malta, who is not registered under this article and who is liable for the payment of the tax on a supply in terms of article 20 shall apply to be registered under this article by not later than thirty days from the date of that supply.” Article 20.2.b - The payment of the tax on a taxable supply made by a person who is not established in Malta and who is not registered under article 10 to a person established in Malta shall be a liability of the person to whom the supply is made if the supply is - (a) a supply of goods made to a taxable person registered under article 10 or 12 or to a non-taxable legal person registered under article 12 who is identified as such on a tax invoice for that supply, where:...” 32

3. Triangulation Simplification What about Article 12 VATA? “12. (1) When a taxable person who is not registered under article 10 or a non- taxable legal person intends to make an intracommunity acquisition in Malta and, on account of that acquisition, the value of his intra-community acquisitions in Malta during the calendar year in which he makes that acquisition exceeds the acquisitions threshold he shall apply to be registered under this article, unless he is already so registered, by not later than the date of that acquisition.” Article 214 (b) EUVD “1. Member States shall take the measures necessary to ensure that the following persons are identified by means of an individual number: (b) every taxable person, or non-taxable legal person, who makes intra- Community acquisitions of goods subject to VAT pursuant to Article 2(1)(b) and every taxable person, or non-taxable legal person, who exercises the option under Article 3(3) of making their intra-Community acquisitions subject to VAT;” 33

4. Application by EU Member States 34

4. Application by EU MSs 4.1 Can the Triangulation Simplification Procedure be applied if B (apart from being established in the UK) has a fixed establishment in Malta? 35 B has a fixed establishment in Malta as well (apart from UK)

4. Application by EU MSs 4.1 Can the Triangulation Simplification Procedure be applied if B (apart from being established in the UK) has a fixed establishment in Malta? Reminder: Art 141 (conditions for exempt ICA by B in Malta) “(a) the acquisition of goods is made by a taxable person (B) who is not established in the Member State concerned (Malta) but is identified for VAT purposes in another Member State (UK);” (e) the person referred to in point (d) (C) has been designated in accordance with Article 197 (Reverse Charge Mechanism) as liable for payment of the VAT due on the supply carried out by the taxable person (B) who is not established in the Member State in which the tax is due (Malta).” 36

4. Application by EU MSs 4.1 Can the Triangulation Simplification Procedure be applied if B (apart from being established in the UK) has a fixed establishment in Malta? Art 197 (conditions for RCM to apply on subsequent domestic supply by B “(c) the invoice issued by the taxable person (B) not established in the Member State (Malta) of the person to whom (C) the goods are supplied is drawn up in accordance with Sections 3 to 5 of Chapter 3.” Art 192 (a) For the purposes of this Section (i.e. also for Art 197), a taxable person who has a fixed establishment within the territory of the Member State where the tax is due shall be regarded as a taxable person who is not established within that Member State when the following conditions are met: (a) he makes a taxable supply of goods or of services within the territory of that Member State; (b) an establishment which the supplier has within the territory of that Member State does not intervene in that supply. 37

4. Application by EU MSs 4.1 Can the Triangulation Simplification Procedure be applied if B (apart from being established in the UK) has a fixed establishment in Malta? Art 2 VATA “a taxable person is established in a country if he has established his economic activity or has a fixed place of establishment from which he carries on that economic activity in that country or, being a physical person who has not fixed his economic activity or who does not have a fixed place of establishment in any country, has a permanent address or usually resides in that country;” Does it make a difference whether the establishment intervenes or not? 38

4. Application by EU MSs 4.1 Can the Triangulation Simplification Procedure be applied if B (apart from being established in the UK) has a fixed establishment in Malta? 39 AustriaNoGermanyNo*PolandNo BelgiumNoGreeceYes*PortugalNo BulgariaYes*HungaryNoRomaniaNo CroatiaNoIrelandNoSlovakiaYes CyprusNoItalyNoSloveniaYes* Czech RepYes*LatviaNoSpainNo DenmarkNo*LithuaniaNoSwedenNo EstoniaNoLuxembourgNoUKYes* FinlandYes*MaltaYes* FranceNoNetherlandsNo

4. Application by EU MSs 4.1 Can the Triangulation Simplification Procedure be applied if B (apart from being established in the UK) has a fixed establishment in Malta? Additional Remarks: Bulgaria, Finland, Germany, Greece, Malta, Slovenia – provided the fixed establishment does not intervene in the supply Denmark – provided B is VAT registered in the MS of arrival Czech Republic, UK - provided the second party is not registered (or required to be registered) for VAT purposes in MS of arrival. 40

4. Application by EU MSs 4.2 Can the Triangulation Simplification Procedure be applied if B (apart from being VAT registered in the UK) is also VAT registered in Malta? 41 B is VAT registered in Malta as well (apart from UK)

4. Application by EU MSs 4.2 Can the Triangulation Simplification Procedure be applied if B (apart from being VAT registered in the UK) is also VAT registered in Malta? Reminder: Art 141 (conditions for exempt ICA by B in Malta) “(a) the acquisition of goods is made by a taxable person (B) who is not established in the Member State concerned (Malta) but is identified for VAT purposes in another Member State (UK & Malta);” 42

4. Application by EU MSs 4.2 Can the Triangulation Simplification Procedure be applied if B (apart from being VAT registered in the UK) is also VAT registered in Malta? 43 AustriaNo*GermanyNoPolandYes BelgiumNoGreeceYes*PortugalNo BulgariaNoHungaryNoRomaniaYes CroatiaNoIrelandNoSlovakiaNo CyprusNoItalyYes*SloveniaYes Czech RepNoLatviaNoSpainNo DenmarkNoLithuaniaNoSwedenYes* EstoniaYes*LuxembourgNoUKNo FinlandYes*MaltaNo* FranceNoNetherlandsYes

4. Application by EU MSs 4.2 Can the Triangulation Simplification Procedure be applied if B (apart from being VAT registered in the UK) is also VAT registered in Malta? Additional Remarks: Austria – A mere registration for input tax deduction – yes simplification applies Estonia – No in theory, Yes in practice Finland, Greece – If it intervenes No, If it does not intervene yes Italy – Based on interpretation of ministerial circular (No.13/1994) Malta – Article 10 Simplification No, Article 12 Simplification Yes Sweden – as long as it is not established in the MS of arrival 44

4. Application by EU MSs 4.3 Can the Triangulation Simplification Procedure be applied if B (apart from being VAT registered in the UK) is also VAT registered in Italy? 45 B is VAT registered in Italy as well (apart from UK)

4. Application by EU MSs 4.3 Can the Triangulation Simplification Procedure be applied if B (apart from being VAT registered in the UK) is also VAT registered in Italy? Reminder: Art 141 (conditions for exempt ICA by B in Malta) (c) the goods thus acquired by the taxable person referred to in point (a) (B) are directly dispatched or transported, from a Member State (Italy) other than that in which he (B) is identified for VAT purposes (UK only or UK & Italy?), to the person (C) for whom he is to carry out the subsequent supply; 46

4. Application by EU MSs 4.3 Can the Triangulation Simplification Procedure be applied if B (apart from being VAT registered in the UK) is also VAT registered in Italy? 47 AustriaYesGermanyNoPolandYes BelgiumYesGreeceYes*PortugalYes* BulgariaNoHungaryNoRomaniaYes CroatiaNoIrelandYesSlovakiaYes CyprusNoItalyNoSloveniaNo Czech RepYesLatviaYesSpainNo DenmarkNoLithuaniaNoSwedenNo EstoniaYesLuxembourgYesUKYes* FinlandYesMaltaYes* FranceNo*NetherlandsNo

4. Application by EU MSs 4.3 Can the Triangulation Simplification Procedure be applied if B (apart from being VAT registered in the UK) is also VAT registered in Italy? Additional Remarks: France – In theory Yes, in practice No Greece, Malta, Portugal (All) - provided that three VAT Nos (i.e. from three different MSs) are used, i.e. as long as the IT VAT No of B does not intervene in the transaction UK – There is a discrepancy between UK tax authorities' published guidance and the UK legislation in that the guidance seeks to disallow triangulation where two of the parties are registered for VAT in the Member State of dispatch. However, we do not consider that the UK legislation provides any support for this 48

4. Application by EU MSs 4.4 Can the Triangulation Simplification Procedure be applied if C (apart from being VAT registered in Malta) is also VAT registered in Italy? 49 C is VAT registered in Italy as well (apart from Malta)

4. Application by EU MSs 4.4 Can the Triangulation Simplification Procedure be applied if C (apart from being VAT registered in Malta) is also VAT registered in Italy? 50 AustriaYesGermanyNoPolandYes BelgiumYesGreeceYes*PortugalYes* BulgariaYesHungaryYesRomaniaYes CroatiaYesIrelandYesSlovakiaYes CyprusNoItalyNoSloveniaYes Czech RepYesLatviaYesSpainNo DenmarkYesLithuaniaYesSwedenNo EstoniaYesLuxembourgYesUKYes* FinlandYesMaltaYes FranceYesNetherlandsYes

4. Application by EU MSs 4.4 Can the Triangulation Simplification Procedure be applied if C (apart from being VAT registered in Malta) is also VAT registered in Italy? Additional Remarks: Greece, Portugal (All) - provided that three VAT Nos (i.e. from three different MSs) are used, i.e. as long as the IT VAT No of C does not intervene in the transaction UK – There is a discrepancy between UK tax authorities' published guidance and the UK legislation in that the guidance seeks to disallow triangulation where two of the parties are registered for VAT in the Member State of dispatch. However, we do not consider that the UK legislation provides any support for this 51

4. Application by EU MSs 4.5 Can the Triangulation Simplification Procedure be applied if B (apart from being established in the UK) is also established in Italy? 52 B is established in Italy as well (apart from UK)

4. Application by EU MSs 4.5 Can the Triangulation Simplification Procedure be applied if B (apart from being established in the UK) is also established in Italy? 53 AustriaYesGermanyYesPolandYes BelgiumYesGreeceYesPortugalYes BulgariaNoHungaryNoRomaniaYes CroatiaNoIrelandYesSlovakiaYes CyprusYesItalyYesSloveniaNo Czech RepYesLatviaNoSpainNo DenmarkNoLithuaniaYesSwedenNo EstoniaYesLuxembourgYesUKNo FinlandYesMaltaYes FranceNoNetherlandsYes

4. Application by EU MSs 4.5 Can the Triangulation Simplification Procedure be applied if B (apart from being established in the UK) is also established in Italy? Additional Remarks: (ALL) – assuming B uses his UK VAT Id No Latvia – till 31/12/2012 Yes, From 01/01/2013 No (potentially arguable) 54

4. Application by EU MSs 4.6 Can the Triangulation Simplification Procedure be applied if transport is made in relation to the second supply B  C? 55

4. Application by EU MSs 4.6 Can the Triangulation Simplification Procedure be applied if transport is made in relation to the second supply B  C? 56 AustriaNoGermanyNoPolandYes* BelgiumNoGreeceNoPortugalNo BulgariaYes*HungaryNoRomaniaNo CroatiaNoIrelandYesSlovakiaYes* CyprusNoItalyYesSloveniaYes* Czech RepNoLatviaYesSpainNo DenmarkYes*LithuaniaNoSwedenYes EstoniaNoLuxembourgNoUKYes FinlandNoMaltaNo FranceNoNetherlandsNo

4. Application by EU MSs 4.6 Can the Triangulation Simplification Procedure be applied if transport is made in relation to the second supply B  C? Additional Remarks Bulgaria – It should be checked whether the tax authorities in Italy would not regard the transaction between A and B as a local supply in Italy Denmark – In principle no, but in practice it will most likely not be a problem. Poland, Slovakia and Slovenia – provided that the transport is not made by C or on C's behalf. 57

Thank You Saviour Bezzina EY Malta 58