To put it simply, the supply of goods within the Community to another member state can be tax free provided all the following conditions prevail:
- the goods are delivered to another member state in a verifiable manner
- the buyer is a taxable entity registered in another member state
- from 2020 onwards it will be a uniform requirement imposed in Community legislation throughout the EU that the buyer must have a valid tax number and this must be communicated to the seller
- another uniform requirement from 2002 onwards throughout the EU will be that the seller must report the transaction in their summary declaration within the Community (in practice, this means the A60 form).
All this also means that the tax exemption cannot be applied provided the seller is not in the possession of the buyer’s valid tax number, or their summary declaration is inaccurate or incomplete, unless they can prove that the error occurred during a good faith procedure.
How was it necessary to verify that the goods were delivered to another EU member state?
Prior to 2020 no uniform method (harmonised throughout the EU) existed for the purposes of certifying delivery to another member state. This meant that each member state could decide what certificates to require as a condition for tax exemption. Thus, a multinational business operating in several member states could encounter even 28 different set of rules, depending on the member state from which the sale originated.
In Hungary the VAT Act does not specifically stipulates the manners of credible certification and, due to the diversification of economic life, it is not even possible to provide an exhaustive list of credible documents in the act. The manner of credible certification may change, subject to the specific situation. In order to give guidance on how to decide such questions, the Hungarian Tax Authority issued a guideline back in 2007.
The certificate relating to a specific transaction may originate from the parties and/or from third parties other than the parties. Whatever the case, we may safely say that the more independent the third party from the parties, the stronger the evidentiary and conclusive force of the certificate is. Obviously, this does not mean that a manner of certification offered by the parties can be automatically excluded, as (in the course of assessing all the circumstances of the case) if it can be concluded that the goods were delivered to another member state in a verifiable manner, then (provided all the conditions stipulated in the VAT Act prevail) the tax authority will accept and regard the sale as exempt from taxation. However, in general, we can conclude that in the great majority of cases, for credible certification there is a need for a credible document from (a) third party/parties showing that the delivery actually took place.
Fundamentally, it is the CMR transport document that can serve as a primary credible document of export, provided background legislation (e.g. the legislative decree on the promulgation of the 1956 Geneva Convention on the Contract for the International Carriage of Goods by Road) makes it either mandatory or possible to prepare a transport document. Obviously, where the party generating community sale can credibly prove in another manner, without a CRM, that following sale the goods were actually delivered to another member state, this can also be accepted.
The certification of export, delivery to another member state from 2020
Effective from 2020, the certification of delivery to another member state is determined in a uniform manner. Thus, it became unambiguous that the delivery presumption sets in provided the certificates required are presented. The rules will be uniform throughout the EU, so a multinational business operating in several member states will not necessarily have to encounter even 28 different set of rules. Instead, it will be possible for them to design the supporting documents along a uniform set of criteria. These rules are included in the EU Implementing Regulation, that is neither in the Hungarian VAT act, nor in the taxation questions. The EU Implementing Regulation is directly applicable.
In case the specific business collects the necessary certificates, the so called delivery presumption sets in. In case the tax authority would like to contest this presumption, it is then their responsibility to prove the opposite.
What, then, are the acceptable evidences of dispatch or delivery? The EU Implementing Regulation divides dispatch certificates into two major categories. Although these two categories do not have an official name in the EU Implementing Regulation, for the sake of simplicity, let us call them base certificates and additional certificates.
Base certificates proving delivery are documents applicable to the dispatch or delivery of the goods, such as:
- the signed CMR-document or the CMR waybill,
- the sea bill of lading,
- the air cargo bill or
- the bill raised by the carrier of the delivery.
Additional certificates proving delivery are the following other documents:
- the insurance policy concerning the dispatch or delivery of the goods; or the banking documents certifying the effecting of payment for the dispatch or delivery of the goods
- a public document prepared by a public authority (e.g. a notary public) certifying the arrival of the goods to their member state of destination
- the proof of receipt issued by the warehouse operator in the member state of destination certifying that the goods are warehoused in the specific member state.
It is important to ensure that these certificates are not contradictory evidences.
The party issuing them is
- independent from the other party, and
- a different party that is independent from both the seller and buyer.
Delivery documents necessary for buyer and seller statuses are different
Depending on the party (the seller or the buyer) managing delivery, the seller must collect different certificates.
1.In case the delivery is organised by the seller, they can choose between two options:
- At least two not contradictory evidences are collected from among the base certificates (two base certificates) that were prepared by two independent parties that are different from the buyer and the purchaser, or
- The seller is simultaneously in the possession of any one of the base certificates and any one of the additional certificates that are non-contradictory evidences of delivery and were issued by two distinct parties that are different from both each other and the seller and the buyer.
2.In case the delivery is organised by the buyer, in addition to the above two options, the seller must also obtain the buyer’s declaration in which the buyer declares that:
- the goods were dispatched or delivered by the purchaser or a third party acting in the name of the purchaser, and
- in which the destination member state of the goods is indicated,
- include all the mandatory content requirements.
The buyer’s declaration must include the following:
- the day of issue,
- the name and address of the purchaser,
- the quantity and nature of the goods,
- the time and place of the arrival of the goods,
- in case of selling a means of transport, the ID number of the means of transport,
- and the identification of the person receiving the goods in the name of the purchaser.
The buyer must provide the seller with this declaration until the 10th day of the month following the sale.