EU VAT treatment with drop shipments from Asia

[steveh]

Dear All,

A UK VAT registered company orders goods from China. The Chinese company sends the goods directly to the 3rd party customer in Czech (the consignee) who clears the goods through customs. The invoice from China states the buyer is the UK company. The Czech company (also VAT registered) is part of a group that has its head office in the UK. The UK company then invoices the Czech company for its fee with no VAT.

Here is the problem:
The Czech company doesn’t have to account for the import on its VAT or Intrastat report as there was no EU supply of goods.

The UK company can’t account for the invoice it raised to its Czech subsidiary on a VAT or Intrastat report as there were no movement of goods. Should this sale be declared on its ESL? If it was an EU triangulation sale then the answer would be yes and “2” would be entered on the ESL list to identify this.

I look forward to your comments.

Thank you.

[Marie Stein]

Just to confirm the terminology so we’re all talking about the same thing – the delivery of goods from one EU country to a VAT registered customer in another EU country is an “acquisition”. The delivery of goods from outside the EU to anyone in the EU is an “import”. And as you point out, they are treated differently for VAT purposes.

Tthe transaction you describe is not a triangular transaction for EC VAT purposes as there is no movement of goods within the EU. So I’d agree with you that it is an import for VAT purposes and therefore there is no requirement for the UK company to include the sale on its ESL.

In this case, as the goods come from China direct to the Czech customer, then the transaction is an import for VAT purposes. The customer will have to pay Czech import VAT on the import, rather than accounting for acquisition VAT on its VAT return.

This is confirmed in VAT Notice 725 The Single Market, section 17.3 here http://tinyurl.com/6aap2g4 which sets out the situations in which ESLs are required:

You must complete an ESL if you:

• make supplies of goods to a business registered for VAT in another Member State, including transfer of your own goods, (see section 9), or
• are the intermediary in triangular transactions between VAT registered traders in other Member States, (see section 13) or
• make supplies of services subject to the reverse charge in your customer’s Member State

Hope this clarifies the situation
Marie

[Author]

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