EU VAT Directive: Place of supply of goods
1
0
Place of supply rules are very important from VAT perspective specially in case of cross border transactions. European Union is an great example of collaboration where different countries come together and allowed businesses and people to freely trave and trade across the member states.
As businesses allowed to trade freely among member states, it only gives a boost to the businesses but also make them accountable for VAT compliances of different countries. For Each country although the basic frame work is same across all the member states but European Union give leverage to each member state to decide for their own VAT rates within the overall framework of European Union. As the VAT rate are different across the member state, hence it is important to established that which VAT rate would apply in a cross border transaction and also to establish where the transaction actually take place.
Here, Place of supply comes into the picture. Place of supply rules enables businesses to establish which country’s VAT compliance would apply in a cross border transaction and also helps us to identify the nature of transaction as well like whether transaction is an Domestic supply or export supply and as the case may be.
Now lets see the place of supply rules in case of goods:
Place of supply of goods in case there is no movement of goods
Article 31 of EU VAT Directive deals with place of supply of goods in case of no movement of goods, i.e., goods are not dispatched or transported, in such case place of supply of goods shall be deemed to be the place where goods are located at the time when supply take place.
The above provision can better be explained below example:
M/s XYZ Co. Ltd have machinery located at their German factory (Property at which machinery is located was taken on lease). Company finds very less business in Germany and therefore, company decided to vacate the property. M/s ABC Co. Ltd., ready to occupied that property and also interested to buy machinery which is already installed at factory location.
Now in this case, XYZ Co. ltd is selling machinery to the ABC Co. Ltd without movement of goods, i.e., only ownership is transferred. In this case, Place of supply shall be factory location i.e., in Germany itself.
Place of supply of goods in case there is movement of goods
Article 32 of EU VAT Directive deals with place of supply of goods in case, there is movement of goods, i.e., goods are dispatched or transported (either by supplier, or customer, or any third person appointed by supplier/customer for transportation of goods as the case maybe) in such case place of supply of goods shall be deemed to be in the place where transportation of such goods begins.
The above provision can better be explained below example:
Lets continue with the example as explained above but in different way. Suppose XYZ Co. Ltd deinstalled such machinery from its German factory and shift it to sister concern company M/s TMC Co Ltd having factory location in Spain (Consider this is an sale transaction), now as there is an movement of Machinery from Germany to Spain, then Place of supply in such a case would be Place from where transportation Begins i.e., Germany.
There are other Provision as wells specially when it comes to goods, which we would be covering in our next article.
We hope you have like our article and it would definitely help you to gain some knowledge about place of supply rules. Stay tuned with us for other Provisions.
Please share with us your thoughts and Feedback for further improvements.
Team Taxation Insight.
