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Triangulation - VAT

Shall we pay VAT in this triangulation case

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Hi,

Iam trying to understand the VAT implications of the following case:

Company A based in UK is a manufacturer of clothes. It buys raw materials from company B based in Italy and deliveres these to company C also based in Italy. Company C transfer raw materials into finished goods and deliveres to company A.

All invoices are addressed to company A (UK based)

Question:

Should company B (supplier of raw materials) charge company A Italian VAT? The raw materials supplied will eventually be exported to UK (as finished goods) however that does not happen instantly of course. 

Replies (4)

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Jason Croke
By Jason Croke
12th May 2021 08:17

Triangulation no longer exists where there is a UK entity.

Is there a reason you've selected to post as anonymous?

You will need a VAT registration in Italy because that is where you acquire the raw materials from Company B and you make the onward sale of materials to Company C.

Article an AccountingWeb covers this question already
https://www.accountingweb.co.uk/tax/business-tax/brace-for-brexit-12-eu-...

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Replying to Jason Croke:
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By Alina 259
12th May 2021 09:06

Hi,

Thank you for your reply. We do pay import VAT on the value of the goods (raw materials + labour). Is that sufficient?

I did not mean to post as anonymous.

Alina

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Replying to Alina 259:
Jason Croke
By Jason Croke
12th May 2021 09:52

Company B (materials) will charge Italian VAT to Company A (in UK) because Company B is making a domestic supply (Italy to Italy) - the goods (materials) aren't leaving Italy - contractually Company B is selling the materials to Company A, Company A takes possession of the materials/goods in Italy.

Company A then makes an onward supply of those materials from Italy to Company C, also in Italy, hence you need an Italian VAT registration in order to charge Italian VAT to Company C and reclaim Italian VAT from Company B.

Company C produces clothing and makes a zero rated export of those clothes to UK (Company A). Those goods will be subject to UK import VAT (either zero or standard rated depending on whether clothing is for children or adults) and there should be Nil import duty as goods originate from the EU.

Company A in the UK needs to set up postponed import VAT accounting or accept that freight company will pay the VAT and recharge to Company A plus admin fee.

As Company A incurs Italian VAT (from Company B), Company A registers for VAT in Italy, Company A can then reclaim the Italian VAT charged by Company B and Company A then makes a domestic (Italy) supply to Company C.

You could see if Company A wants to sell the materials directly to Company C and then Company C can charge you for the materials plus production of clothing and that avoids the Italian VAT registration.

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Replying to Jason Croke:
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By Alina 259
12th May 2021 23:31

Thank you for your reply Jason.

I am confused because I have received inconsistent advise.

Today my Italian Accountant told me there is still a triangulation and Company A should not be charged VAT based on sale pursuant to art. 8 DPR 633/72

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