Zero rate of VAT on ICS of goods

Updated on April 14, 2022

The point at which an intra-Community supply (ICS) of products begins is the point at which transportation begins.

If the following conditions are met, the ICS may be subject to a 0% rate of Value-Added Tax (VAT):

The customer must be VAT-registered in another EU country.

You must get and keep the VAT registration number of the customer (including country prefix)

On the sales invoice, you must provide your VAT number as well as your customer’s VAT number.

The items must be shipped or transported to another EU country.

and

The provider is responsible for making the correct VIES returns.

If any of the five conditions listed above are not met, you must charge your customer Irish VAT at the appropriate rate for the items.

If the requirement to submit a

Overview

When items are delivered or transported between enterprises in various Member States (MS) of the European Union, this is known as intra-community supply and acquisition (EU). Two transactions are regarded to have happened for the purposes of Value Added Tax (VAT):

acquisition inside the community (ICA)

supplies inside the community (ICS).

The VAT treatment of ICS goods is covered in this section. The supply of commodities by a firm in one EU MS to a business in another EU MS is referred to as an ICS. The purchaser is expected to self-account for VAT in certain transactions. As if he or she had manufactured the supply themselves, the buyer self-accounts for the VAT.

This section clarifies:

in the European Union, the VAT treatment of ICS of products (EU)

what proof do you require

What is triangulation?

Two supplies of goods are made between three VAT-registered traders in three distinct European Union (EU) Member States in a process known as triangulation. For example, suppose a dealer from one Member State (MS1) sells items to a trader from another Member State (MS2) (MS2). The items, on the other hand, are delivered to a third-country trader (MS3).

A simplification mechanism has been implemented to alleviate the administrative and compliance requirements on traders and tax authorities connected with such triangular transactions. Only when all three traders engaged are VAT-registered in the European Union can this simplification measure be implemented.

The simplification measure works like this in general:

From firm A to company B, there is a zero-rated intra-Community supply (ICS).

The stock is limited.

vat-triangulation

Transactions involving more than three companies

The simplification measure can only be used in the above-mentioned classic triangulation situation. The stringent legal situation will apply if there are more than three companies engaged (for example, successive sales between corporations in Member State 2). Depending on the specific circumstances, registration in at least one other Member State may be required.

Evidence required for ICS of goods

To prove the dispatch and removal of products from the state, documentation is required.

Presumption that goods have been transported

When a products supplier has specific documents, it is safe to assume that the goods have been shipped and carried.

More information about the documents that are required can be found in the additional guidelines.

If the provider does not have certain documentation, this does not rule out the possibility of applying the Zero rate. If adequate evidence of dispatch and transportation can be shown, the Zero rate may still apply. The type of proof necessary will be determined on who organised the transportation. The pages that follow provide examples of evidence that might be used to prove that the transportation took place under certain conditions.

Proving goods have been transported without engagement of presumption of transport

Even if the supplier does not have the documentation required to invoke the presumption of transportation, the zero rate does not automatically apply. If adequate evidence of dispatch and transportation can be shown, the zero rate may still apply. The type of proof necessary will be determined on who organised the transportation. The many circumstances are listed below.

Transportation arranged by the supplier

Customers who have purchased products from a supplier who has arranged for their transportation should maintain all commercial documentation relating to the supply and transportation.

As a starting point, here are some examples:

invoice delivery docket, such as a bill of lading, which shows that funds have been transferred from foreign banks for payment.

Transportation arranged by the customer

The business customer has the option of either arranging transportation for the products or transporting the goods themselves. aThe provider must be certain that the items have been transferred or dispatched to another EU Member State in certain cases.

Customers should provide the supplier with proof of their claims, which the supplier should preserve. This documentation serves as proof that the products have been received in the other EU country. Documentary evidence may include the following in these types of circumstances:

receipts or dockets from the warehouse.
It’s also a good idea to keep track of the customer’s transportation method, including:

Identification number of the vehicle, flight number, and ship’s itinerary.

Issues for suppliers to be aware of

It is recommended that suppliers use extra caution. In order to qualify for zero-rating on sales and deliveries to other EU countries, suppliers must verify that all five requirements are met. In some cases, doubt can arise, such as:

the provider has never met the customer before the customer arranges for the products to be picked up and transported by the customer.
Without warning or correspondence, the customer’s transportation arrives at the supplier’s facilities without delay and the customer pays in cash.
Considering the alleged final destination of the items, the type or amount of commodities acquired is out of step with commercial practise.
If one or more of these variables are present, the supplier must use extreme caution.

Providers should charge Irish VAT if they have any doubts about a transaction (VAT). If the prerequisites for zero-rating are met, the consumer is entitled to a refund of the VAT they paid to the provider. A VAT adjustment can then be made by the supplier for the period.

If the customer’s VAT registration number isn’t valid, the supplier may be sceptical. The supplier should verify the customer’s VAT registration number using the VAT number validation system in certain instances. Before applying the zero-rating, the customer’s VAT registration number should be checked.

Suppliers should take all reasonable steps to ensure that the zero-rating conditions are met. Suppliers that have taken these precautions will not be penalised in the event that an issue arises with a specific shipment. Any provider who has not taken all reasonable steps to avoid tax will be liable for the Irish rate of tax. For more information on how to avoid becoming a victim of VAT fraud, check this page.

Penalties for fraudulent claims

Fraudulent claims for zero-rating are punishable by fines and penalties.

The following are the consequences:

Removal of zero-rated items that have not been shipped or carried outside the United States and their forfeiture.
A fine of €4,000 can be levied for any transaction in which the VAT number entered is erroneous. In addition to the tax that would be due, this penalty is imposed.
You could get arrested.
Penalties up to €126,970 in civil and criminal court and five years in prison are possible outcomes.

Supplies of excisable goods to other Member States

VAT registration is a requirement for any provider selling excisable goods into another EU member state. All excisable items are liable to VAT in the Member State where they are first sold.

What are excisable goods?

Following is a list of items that are subject to tax:

Wine, beer, cider, and spirits are all examples of alcoholic beverages.
As an example of a tobacco product, consider cigarettes.
cigars
Roll-your-own cigarillos and pipe tobacco.
Mineral lubricants (motor and heating fuels).
The VAT treatment of excisable products will be further clarified in future guidelines.

ICS of a new means of transport

Deliveries made to a person in another EU country are referred to as intra-community deliveries (ICS). A motor vehicle, watercraft, or aircraft is a new mode of transportation. Value-added tax (VAT) must be paid in the Member State where the new mode of transportation is being used by the client.

A private individual in another Member State may purchase a new mode of transportation from a Member State. At such cases, VAT is due in the country of final destination.

Dealers should, however, charge VAT if the buyer collects the new vehicle in that state. The dealer shall reimburse the customer for the VAT they were charged if the customer can demonstrate to him or her that it was paid in their country of residence. This means that the dealer can alter the VAT liability in their VAT return for the period in accordance with this new information from the government.

The dealer shall keep any and all documentation, including but not limited to:

proof of the registration of the new means of transport in the other Member State and a copy of the receipt demonstrating the payment of VAT.
For the purposes of VAT, the following items are deemed to be “new modes of transport”:

Vehicles that can be used to calculate VAT
Transport Specification ‘New’
Transportation by means of motor vehicle
More than 48cc or more than 7.2kw
Less than six months old, or less than 6,000 kilometres travelled
a ship in the ocean
greater than or equal to 7.5 metres in length, less than 3 months old, or fewer than 100 hours of sailing
Aircraft
More than 1,550 kilogrammes of take-off weight, less than three months old, or less than 40 hours of flight time