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EU supplier, UK buyer, EU corporate recipient?

Drop shipment from a company in one EU country to a recipient in another EU country

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We have a component supplier in Austria (VAT registered in Austria).

We have another supplier in Germany (VAT registered in Germany) who uses the Austrian component to make the finished product.

I would like the Austrian company to bill us in the UK but send the component directly from Austria to Germany.

The Austrian company (and their accountant) are saying that they are unable to bill a UK company and ship the goods to Germany a) as a consequence of Brexit, and b) this is an intra-community shipment.

We've had silly billing issues with this supplier in the past where their accountant didn't have a good grasp of intra-community sales where we bought their goods through a Belgian company. We had to explain some very simple concepts to them.

Regardless of Brexit, this seems a very straightforward instance of drop shipment where the Austrians bill the UK company and ship the goods across the border to Germany with zero-rated VAT. The accountant for the Belgian company seems to think it is.

Are we wrong in thinking that this is not a mind/law-bending situation as the Austrians seem to think? Yes, there could be some quirk in the Austrian tax regime, but I can't imagine that that would be the case for something that seems so basic. 

Even then, I'm not sure how to explain the obvious to the Austrians. Or, perhaps I'm the one that needs to be mansplained?

Now, I recognise that an alternative "solution" is for the German supplier to be billed by the Austrians, and for the Germans to bill us in turn. However, the Germans cannot flip it at zero margin, so they need to bill us a 10% surcharge, which I understand but doesn't make economic sense to us.

Any thoughts would be much appreciated.

Replies (6)

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By paul.benny
30th Jul 2021 13:30

Before Brexit, this was a (relatively) simple triangulation. One of the benefits of Brexit is loss of that simplification and you now have to VAT register in Germany.

Take a look at this article:
https://www.accountingweb.co.uk/tax/business-tax/brace-for-brexit-12-eu-...

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Replying to paul.benny:
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By chik
30th Jul 2021 14:57

Many thanks for this. I now understand that we effectively establish VAT nexus in Germany.

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Replying to chik:
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By paul.benny
30th Jul 2021 15:03

Or, as Jason explains below, Austria.

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Jason Croke
By Jason Croke
30th Jul 2021 14:57

I think perhaps it may be you that has to listen to the mansplaining chat :)

Your proposal is the Austrians make the goods and ship them to Germany but bill you in the UK (what we used to call triangulation before Brexit meant triangulation no longer works).

Who owns the goods at the time they leave the Austrian factory?

Based on your post, you own the goods because you expect the Austrians to invoice you for those goods. So if the Austrians have sold you the goods (in Austria), then at the time the goods leave Austria, you own the goods.

As you own goods physically in Austria at the time they are shipped to Germany, you are making a taxable supply in Austria (not the Austrian supplier), hence you are required to register for VAT in Austria and then make a zero rated, intra-EU supply from Austria to Germany.

This is why you are getting resistance, the Austrians cannot zero rate to you as the goods are not leaving Austria at the time of sale, so they'll have to charge you Austrian VAT.

VAT is more to do with contract law than numbers, you need to look at the transaction in terms of ownership and title. Ownership of the goods changes in Austria, the Austrians aren't shipping THEIR goods to Germany, they have sold their goods to you and they are shipping YOUR goods to Germany. In effect, there is a sale of goods in Austria and then as a favour, the Austrians will ship your goods to Germany for you, but ownership wise, they are your goods.

This is why your counter proposal, which is for Austrians to sell direct to Germany and Germany bill to you plus their 10% and that would work, notwithstanding the 10% mark up of course.

If this transaction is an important part of your business operation, then you need to seek specialist advice/speak to your Accountant. If its a one-off then maybe take the 10% hit for an easier life.

One last point, you refer to your Belgian accountant doesn't see any issue. Some EU member states operate different rules on intra-EU movements, Belgian laws may not be the same as Austrian/German laws so you need to seek advice in either Austria or Germany as your Belgian advisor may not be aware of individual member state rules.

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Replying to Jason Croke:
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By chik
30th Jul 2021 15:05

Thanks for this.

I read your article linked in the reply from Paul above. I now understand the basic concept.

However, I have one question for you. In your reply, you mention a need to be VAT-registered in the origin country (Austria) whereas in the linked article, you talked about the destination country (Germany). I can imagine that there may be different assessments based on what the Incoterms are, which I think is what you meant by your reference to contract law. Did you mean to say that IF ownership of the goods changes in Austria, then we would need to register for VAT in Austria, in this instance, and you assumed that the ownership changes in Germany, in your previous article?

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Replying to chik:
Jason Croke
By Jason Croke
30th Jul 2021 15:23

Generally, and referring to my Brexit article, the default position is that you register for VAT in the Country where the goods are received, and so that would be Germany.

However, you can register for VAT in the Country where the goods are dispatched from. Either way you end up with an EU VAT registration.

If your main supplier is in Austria and you service all of the EU via that one supplier, it is easier to have an Austrian registration - you reclaim the Austrian VAT the manufacturer charges you and you make intra-EU zero rated sales to rest of EU ( incl. Germany). But if you have loads of different suppliers across the EU but you only sell to say Germany, then its easier to have a German registration as you will only ever be selling to Germany. So there are choices to be made based on the activities and set-up of the business. The Brexit articles can only give a general appraisal of the situation.

Incoterms are somewhat irrelevant when dealing with intra-EU movements as its a single market. My reference to contract law is more about understanding the contractual terms of buying and selling goods, hopefully my post above explains that what might look like a simple "I want the Austrians to ship their goods to Germany" is actually a series of separate legal transactions where title changes from manufacturer to you, and from you to customer, etc.

Article here from Croner that mirrors what we're discussing here https://www.cronertaxwise.com/community/my-vip-tax-team-vat-question-of-...

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