There has been increased debate over the last few years on the question of which transaction in an intra Community supply chain for goods can be zero rated (or exempt in EU terms). This was considered in cases such as Emag and Eurotyre and the key observation to take from these cases is that the rules are different within the EU – in an EU chain transaction (ie more than 3 parties), some Member States don’t care who arranges the transport in determining whether the zero rate applies, whilst others do. The plot has now thickened with the Advocate General’s (AG’s) opinion in the Vogtlaendische Strassen-Tief-und Roherleitungsbau GmbH (VSTR) case – not the final ECJ decision but an important step in the legal process. The AG in this case appears to be suggesting that, in a scenario where EU supplier in Member State 1 physically ships goods to final customer in Member State 2, but actually sells them to a non EU business (not VAT registered or established in the EU), who onsells to final customer, there is no requirement for the supplier to charge VAT to the non EU business, even though the latter is not EU VAT registered. This begs a number of questions, not least of which the fact the value of the ‘despatch’ to final customer will not equate to the value of the acquisition in the final country as the mark up from the non EU party will be missing. The EU VAT system in this area relies on the 2 sides of such transactions matching to ensure fiscal neutrality and in the absence of a ‘triangulation flag’ on the relevant reports, there is no way of readily identifying the reason for the discrepancy. Of more immediate concern/interest to businesses is the fact that the opinion would appear to give non EU businesses caught up in EU supply chains a much easier time than EU businesses in terms of VAT compliance obligations. The opinion is not saying that the non EU business is not required to VAT register but it is widely acknowledged that the awareness of this registration obligation often only arises when an EU VAT cost from the supplier is incurred. This leads non EU businesses to VAT register to recover the VAT and to comply with the rules. Without this ‘nudge’ the question arises as to whether there will be an increase in non compliance with the VAT registration rules. VAT registered businesses selling goods cross border within the EU face a significant compliance burden in meeting the VAT and statistical reporting requirements for such transactions – far greater than the burden for imports and exports. It remains to be seen as to whether the ECJ will follow the AG’s opinion but regardless of the outcome here, it is clear that there is now a significant difference in treatment within the EU with regular challenges to the previous status quo. If you would like to discuss this in more detail, please call Julie Park on 01962 735 350.