This case concerns triangulation. The taxpayer is an Austrian intermediary, (someone in the middle of the supply chain, not an agent), who purchases luxury vehicles from the UK and sells them to customers in the Czech Republic. The goods are sent directly from the UK to the end recipient. Clearly this concerns transactions when the UK was part of the EU. The AG uses the Netherlands instead of the UK in examples, possibly to avoid any confusion as triangulation only applies when all entities are in different Member States.
Source KPMG – KPMG’s Talking Points 42/22 – weekly indirect tax news update
Full version – KPMG
Luxury Trust Automobil (C-247/21) – Judgment – Triangulation – incorrect invoice and retrospective correction – taxpayer loss
This case concerns triangulation. The taxpayer is an Austrian intermediary, (someone in the middle of the supply chain, not an agent), who purchases luxury vehicles from the UK and sells them to customers in the Czech Republic. The goods are sent directly from the UK to the end recipient. Clearly this concerns transactions when the UK was part of the EU. The AG uses the Netherlands instead of the UK in examples, possibly to avoid any confusion as triangulation only applies when all entities are in different Member States.
Under normal rules the exempt intra community supply is A to B and with B accounting for acquisition tax. However, B (the Austrian entity) would then have to register for VAT in C (the Czech Republic) as it would be making supplies there. If B had customers in multiple Member States then this would require multiple registrations.
In order to avoid this the VAT Directive provides for the triangulation simplification under Article 141. In particular Article 141(e) provides that:
(e) the person referred to in point (d) has been designated in accordance with Article 197 as liable for payment of the VAT due on the supply carried out by the taxable person who is not established in the Member State in which the tax is due.
The Austrian taxpayer did not account for acquisition tax in Austria. The Austrian Tax Office challenged this on the basis that the invoices issued to the end Czech customer did not contain any reference to the transfer of the tax liability.
The earlier AG was of the view that the wording of Article 197, in conjunction with Article 226(11a) requires an express reference to a reverse charge when opting for the simplification but there was no such reference on the invoice. The reference also asks whether invoices can be issued to correct the error. The AG was of the view they cannot apply retrospectively.
The Court agreed with the AG that one of the purposes served by an invoice is to inform the recipient of the invoice of the legal assessment of the transaction of the issuer of the invoice. The Court added that purpose is even more important in such a situation when it indicates whether it is the supplier or recipient who is liable for VAT – since the triangulation derogation is optional it is the formality required by Article 226(11a) which makes it possible to ensure that the final recipient of a supply is aware of their tax obligations to which there must be no uncertainty. The Court therefore concluded that Article 42(a) read in conjunction with Article 197(1)(c) must be interpreted as meaning that, in a triangular transaction, the final customer has not been validly designated as liable for payment of VAT where the invoice issued by the intermediary acquiring the goods does not contain the words ‘Reverse charge’ as required under Article 226(11a).
As regards the correction of invoices, the Court agreed with the AG the retrospective fulfilment of a mandatory condition for transfer of the VAT liability to the recipient does not constitute a correction – the omission of the words ‘Reverse charge’ required may not subsequently be corrected by adding a statement that the invoice relates to an intra-Community triangular transaction and that the tax liability is transferred to the recipient. To access the judgment, click here.
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