When declaring international transactions in your VAT or ICP return, you must consider the so-called ‘ABC-transaction.’
This ABC deal always involves at least three companies from one or more countries. Company A sells its products to Company B, who then sells the same products to Company C. Who is required to pay VAT and where is the VAT due?
The goods in the transaction are delivered directly from company A to company C. Normally, when transportation occurs as part of a supply between company A and company B, company B must register for VAT in the country where company C is located. That means it is required to file a VAT return in that country.
When the supply meets the conditions, the simplified ABC transaction applies, and there is no need for registration or the filing of a VAT return.
Conditions for the simplified ABC transaction
Company B can file its VAT return in the Netherlands without having to register if it meets the criteria listed below:
- The middleman must be the corporation based in the Netherlands;
- The business is already set up in the Netherlands for tax purposes;
- The business is unwilling to register in the country of Company C;
- The business must be able to prove that it obtained the products from Company A with the intention of reselling them to Company C;
- All three companies must have valid VAT registrations in their respective EU member states; you plan with A for the transportation of the items.
- The products must travel directly from A to C in C’s country.
- Company C’s intracommunity supply must be disclosed in the VAT return.
The primary benefit is that Company B does not need to register for VAT in every nation with which it does business. When company B has an existing VAT registration in the nation of company C, the simplified ABC transaction is not applicable.
How does it work?
When company A sends company B an invoice with no VAT, company B should not include this purchase in its VAT return. Company B and Company C’s transaction is classified as an intra-community transaction (please see our article regarding this subject). Company B is required to submit a VAT-free invoice. These invoices must adhere to certain standards (please see our article about invoice requirements). The following are the most important supplementary requirements:
- The invoice should include Company C’s VAT identification number;
- The invoice should state:
- Reverse-charge; or
- Intra-community supply.
When this is completed, firm C is notified that the simplified ABC transaction is appropriate for VAT reasons.