Will European Trade after Brexit Remain Simple?

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Trade between the EU and the UK is fairly straightforward at present.  UK companies and those from other member states simply provide their customers or suppliers with their EU VAT numbers and the VAT is generally accounted for by the member state where the goods are sent to.

The EU VAT number is the same as a UK VAT number with the addition of “GB” in front of the number.  This denotes that the number is a UK VAT number but can be used and is recognised throughout the EU.

Supply chains are not always as simple as that though and to accommodate more complicated series of transactions there are some simplifications that are enshrined in both European and UK Law. These simplifications facilitate trade with other European Member States by using the pan EU VAT number system as a means of identifying trade between businesses in other countries.

There are currently 3 main areas where simplifications are available to businesses trading in the EU.  These areas are:

1. Triangulation

2. Installed or assembled goods

3. Processing of goods

Looking at an example of a triangular supply, if a UK company made a sale to a German customer and had to source the goods in the Republic of Ireland the supply chain would be as follows:

• Irish supplier invoices a UK company for goods. The Irish customer has the UK businesses VAT number so can zero rate the transaction.
• The goods are delivered directly from the Irish supplier to the German customer, arranged by the UK business.
• The UK business can zero rate the supply to the German customer as it has their German VAT number and quotes this on the invoice.
• The VAT is dealt with by the German customer using their VAT number and the goods are now within the German VAT system.

If this simplification process was not available then the following scenarios could apply:

• Irish supplier is contracted to supply and deliver goods to Germany and invoices the UK company for doing this. The place of supply of the goods is Germany. This is because the goods are supplied to the British company in Germany by the Irish supplier who is responsible for getting them there.
• The UK company has to register for VAT in Germany as the supply is made where the goods are supplied (in this case Germany).
• If the UK company made the sale to the German customer and responsibility for shipment from Ireland fell to the UK company, then the place of supply would be Ireland as the UK company would be receiving the goods from the Irish supplier in Ireland.
• This would mean that the UK company would have to register for VAT in Ireland.

This example related to a Triangular supply and, although the supply in both cases is made outside the UK, it will then depend very much on the detail of any trade deal we strike with either the EU as a whole or the individual member states to determine how these types of situations are accounted for in future.

Installed or assembled goods currently also benefit from a simplification as the place of supply is always where the goods are installed or assembled.  If in a circumstance where goods are being installed in another member state then the place of supply is that member state.  The company supplying the installation can use the customer’s VAT number in the member state of installation to account for the VAT by treating the supply of goods as a despatch to another EU Member State.  The customer’s EU VAT number is quoted on the invoice to zero rate the transaction.  What will happen post Brexit?  Again it will depend on whether any deal struck enables such flexibilities.

A more limited simplification is available for processing. For example, if a UK company orders goods from a supplier in Germany and specifies that they are delivered to a processor in Belgium to be finished.  The finished goods are then sent to the UK company from the Belgian processor.  The supply from the German company to the UK customer will be a normal Intra EC supply and will be an acquisition in the UK as the German company will have the UK company’s EU VAT number.

The supply of processing services by the Belgian company can then be supplied to the UK company using the reverse charge procedure for services.  The movement of the goods from Germany to Belgium and Belgium to the UK are not treated as further supplies and acquisitions.

If the use of the UK company’s EU VAT number was not available for the German company the procedures would be much different despite the goods following the same route.  One scenario could be that the German company would have to send the goods to Belgium as an Intra EU transaction but would have to arrange for the goods to be exported from Belgium to the UK.

UK businesses have become used to benefitting from the free movement of goods and although there are reporting requirements via the VAT return, the EU sales list and the Intrastat system, the current procedures are much more straightforward and quicker than dealing with Imports and Exports from non-EU countries.  If we go back to Imports and Exports then the prospect remains of goods being held up at the border and in order to trade with other EU Countries, it may become necessary for businesses to have multiple EU VAT numbers.