The person liable to pay the VAT due on a transaction to the tax authorities is usually the supplier, but it may also be the customer. In the case of the customer, it is not only taxable persons (businesses) who may have to pay the tax (as in a reverse-charge supply or on an intra-EU acquisition) but sometimes also a non-taxable legal entity.
VAT is payable by any taxable person making a taxable supply (‘the supplier’) of goods or services, unless it is payable by another person (Article 193 VAT Directive).
These can be divided into:
The transactions in which the customer must be the person liable to tax are set out in Articles 195-198 and 200 VAT Directive.
In what follows, ‘a non-established business’ means a business not established in the EU country where the tax is due. For these purposes, even if a business has a fixed establishment in a particular EU country, it is not regarded as established there if that fixed establishment does not intervene in a taxable supply of goods or services the business makes in that EU country (Article 192a VAT Directive).
The transactions in question are as follows:
The obligation to pay VAT is the customer’s where the supply is one of:
by a taxable person not established in the EU country where the tax is due (Article 195 VAT Directive).
In the case of a supply to a taxable dealer, that is the Member State in which the dealer is established (Article 38 VAT Directive). In any other case, the tax is due in the Member State in which the customer effectively uses and consumes the goods. However, if the customer does not effectively consume part or all of the gas, electricity, heat or cooling energy, the rest is deemed to have been used and consumed in the Member State in which the customer is established (Article 39 VAT Directive).
Under Article 196 VAT Directive, the person liable for VAT is the customer where:
What is the rule?
In a triangular transaction, the ultimate customer is the person liable to pay VAT, provided that the customer is a taxable person or a non-taxable legal person registered for VAT in the EU country where the final supply takes place.
What is a triangular transaction?
A triangular transaction is one in which a business established in EU country A supplies goods to a customer in EU country B, but the goods are shipped directly to the customer from a third EU country (C).
A business in Belgium receives an order for widgets from a customer in Italy. The widgets are made on behalf of the Belgian supplier by a manufacturer in Ireland, who ships them directly to the Italian customer.
Thus, there are two supplies and an intra-EU acquisition:
What are the precise conditions that must be satisfied?
The conditions for triangulation to apply and the customer to be liable to tax are that:
Exception for tax representatives
Where the supplier has appointed a tax representative to comply with his VAT obligations on his behalf, EU countries may not apply the rule.
When the customer must be liable
As part of the special scheme for transactions in investment gold an EU country may tax specific transactions between taxable persons who are members of a regulated gold bullion market or between a taxable person who is such a member and another taxable person who is not (Article 352 VAT Directive).
Where this is in operation, the customer must be the person designated as liable for payment of VAT.
However, if the customer is a taxable person who is not a member of a regulated bullion market and needs to register for VAT in the EU country in which the supply takes place solely because of a taxed transaction, the vendor (the supplier) must take over the customer’s tax obligations in the way that the EU country provides.
When the customer may be liable
EU countries may opt to designate the customer as the person liable to pay the tax in transactions:
A person who makes a taxable intra-EU acquisition of goods is the person liable to pay the tax.
An intra-EU supply will normally be exempt, hence the obligation to pay the VAT falls on the customer.
For the exemption of intra-EU supplies, see Exemptions for intra-EU supplies
In addition to those instances where it is mandatory that the customer pays the VAT due on a transaction, there are also instances where EU countries may choose to designate the customer as the person liable for payment.
These instances are set out in Articles 194, 199, 199a and 199b VAT Directive and are, briefly:
A very broad option is allowed to EU countries to designate the customer as the person liable to pay the VAT due on a supply instead of the supplier wherever the supplier is a taxable person who is not established in the EU country where the tax is due (Article 194 VAT Directive).
For these purposes, even if a taxable person has a fixed establishment in a particular EU country, he is not regarded as established there if that fixed establishment does not intervene in a taxable supply of goods or services the taxable person makes in that EU country (Article 192a VAT Directive).
EU countries may choose to designate the customer as the person liable to pay the VAT where the customer is a taxable person and the supply is any one of a number prescribed (Article 199 VAT Directive).
Most of these supplies are connected with immovable property. Remember that the place of supply of services connected with immovable property is where the property is located (see Where to tax: immovable property services).
The supplies in question are:
Where EU countries elect to make the customer liable, they are at liberty to choose which of these supplies will be covered by the option and to which categories of suppliers and customers it will refer.
For these purposes, EU countries may also regard non-taxable legal entities covered by public law (public bodies) as taxable persons where they receive the last three categories of supply mentioned.
For a limited period of at least two years, but ending no later than 31 December 2018, EU countries may designate the customer who is a taxable person as the person liable to pay the VAT due on fraud-sensitive goods or services such as a transfer of emissions allowances and related supplies.
The primary reason for allowing the option is to fight fraud.
The supplies concerned are:
Where EU countries exercise this option, they must provide information to the EU Commission concerning:
When goods are imported, the person liable to pay the VAT is the person designated or recognized as liable to pay by the EU country in which the importation takes place (Article 201 VAT Directive).
This is usually the customer or an import agent acting on the customer’s behalf. The customer may be a taxable person or a non-taxable person, such as a private individual.
Where the customer is a taxable person who imports the goods for the purposes of his taxed transactions, he may claim the import VAT as deductible input VAT.
When goods are imported, they may be placed in a customs warehouse or some other ‘suspensive arrangement’ – an arrangement for deferring import VAT and/or customs duties and possibly also excise duties on the goods until they are released into free circulation for final use or consumption.
When goods leave such an arrangement, the person causing them to be removed is the person liable to pay the VAT (Article 202 VAT Directive).
Whoever enters an amount of VAT as due on an invoice must pay that VAT, even if the entry was in error or even if the person is not entitled to charge VAT (Article 203 VAT Directive).