Triangular Transactions from a German Perspective

Stress in connection with Triangular Transactions

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The triangular transaction from a German perspective

Update information Chain Transaction Calculator 2020: The Chain Transaction Calculator has already been updated to the legal situation valid from 01. 01. 2020. New in the Chain Transaction Calculator: Whenever the use of a different VAT identification number allows a different assessment, you will now find additional chain transaction sketches with the corresponding alternative examples in the evaluations. In addition to the new legal situation, the examples can also be accessed in the archive according to the legal situation valid until 31.12.2019.

Update information to this page: (triangular-transaction.de): Since 1 July 2020, a temporary reduction in the general and reduced VAT rate has been in force in Germany pursuant to § 28 UStG. More detailed information can be found in an accompanying BMF letter. The standard tax rate therefore changes from 19 % to 16 % for supplies during the period 1.7.2020 to 31.12.2020. Similar changes in other member states cannot be ruled out.
This page was updated on 24.06.2020 in connection with the temporary reduction of the VAT rate in Germany. In the Chain Transaction Calculator you will now also find the VAT return codes to be used for this.

Term Explanation:

A triangular transaction is a chain transaction where a simplification rule is applied. A triangular transaction may exist where three entrepreneurs enter into sales transactions in three different Member States on one and the same commodity and this commodity passes directly from the first entrepreneur (= first supplier) to the last entrepreneur (= last purchaser).

Also, visit the chain transaction calculator. With just a few clicks, you can evaluate your particular chain and/or triangular transaction here. By clicking on the above sketch, you get directly to the triangular transaction France/Germany/Poland of the chain transaction calculator.

Facts (triangular transaction):

A Polish entrepreneur E3 (= last purchaser) orders a machine at his German merchant E2 (= first purchaser or acquirer). The latter, in turn, orders this machine from the French manufacturer E1 (= first supplier) and instructs him to dispatch the machine directly to the Polish entrepreneur E3.

Benefit of the simplification rule:

The simplification rule of § 25b UStG (German Value Added Tax Act) leads to none of the entrepreneur involved in the triangular transaction has to obtain a foreign VAT registration. Without the application of the simplification rule, the first purchaser E2 in the above example (the German merchant) would have to obtain a VAT registration in the country of arrival of the goods supplied (Poland). This would mean he would have to file monthly VAT returns.

Legal consequence of the simplification rule:

The tax liability of the first purchaser E2 transfers to the last purchaser E3 (reverse charge procedure). Thus, no taxation takes place in the Member State of the first purchaser (the entrepreneur in the middle). The intra-Community acquisition (in Germany) is deemed to be taxed and the VAT registration of the first purchaser in the country of arrival of the goods supplied (Poland) is avoided.

Without the application of the simplification rule, the first purchaser E2 would have to report an intra-Community acquisition (with right of VAT deduction) and a (taxable) domestic supply in the country of arrival of the goods supplied, as well as an additional intra-Community acquisition (without VAT deduction) in the country whose VAT identification number (also called VAT registration number) he uses in the event that he does not transact with a VAT identification number of the country of arrival (25b.1. (1) UStAE (VAT Application Decree)).

The main grounds for exclusion (from the perspective of the German legislation):

The entrepreneurs must be registered in three different Member States. When 2 of the involved parties use the VAT identification number of the same Member State, no triangular transaction obtains.
If the dispatch is arranged by the last entrepreneur (= last purchaser) or a pickup by him occurs, no triangular transaction takes place (but a chain transaction).
When more than 3 entrepreneurs participate in the chain transaction, the simplification rule of the triangular transaction only applies in exceptional circumstances (see also example 7).

Note: You have to pay attention to more than 10 preconditions in connection with triangular transactions.

Please register to get full access to this side including the list of detailed preconditions. You can find further information on this at the bottom of this site.

The "technical handling" of the triangular transaction:

The invoice of the first supplier (E1) to the first purchaser (E2) is issued without VAT and includes the words "intra-Community supply pursuant to § 4 (1)(b) UStG in conjunction with § 6a UStG" or alternatively "intra-Community supply pursuant to Art. 138 Directive on the VAT system".

There are no special requirements for the first supplier. He deals with the business in both the VAT return (identification number 41) and in the Recapitulative Statement (EC Sales List) as if the goods were delivered to the first purchaser. There is thus no indication of a triangular transaction and also no reference to the Member State or the VAT identification number of the last purchaser.
Since the intra-Community acquisition of the first purchaser in accordance with § 25b (3) UStG is deemed to be taxed as part of the triangular transaction, no entries in the VAT return are required for this incoming invoice.

The invoice of the first purchaser (E2) to the last purchaser (E3) is also issued without value added tax and contains the words "Intra-Community triangular transaction according to § 25b UStG" or "Simplification rule per Art. 141 Directive on the VAT system" as well as a reference to the transfer of the tax liability to the last purchaser (25b.1. (8) UStAE).

The first purchaser hereby conducts a supply in which the tax liability is transferred to the last purchaser. Nevertheless, the assessment bases are to be recorded in identification number 42 of the VAT return, as well as a triangular transaction in the Recapitulative Statement (EC Sales List).
The last purchaser shows the transaction in the identification number 69 of the VAT return for the value added tax liability of the first purchaser transferred to him and, in case of entitlement to reclaim the VAT in the identification number 66 as well.

Triangular transaction special case (E1 and E2 have the same nationality):

Also, visit the chain transaction calculator. By clicking on the above sketch, you get to the appropriate example of the chain transaction calculator (www.chaintransaction-calculator.de). The example can also be evaluated for other countries here.

Facts:

A German entrepreneur E3 (=last purchaser) orders a machine from a French wholesaler E2 (=first purchaser). He, in turn orders this machine from the French manufacturer E1 (=first supplier) and instructs the latter to send the machine directly to the German entrepreneur E3. The French wholesaler E2, however, does not use his French VAT identification number but appears with a Dutch VAT identification number in this chain transaction.

Legal consequence of using three different VAT identification numbers:

The requirement of § 25b (1) sentence 1 no. 2 UStG for the existence of an intra-Community triangular transaction is fulfilled, since the three entrepreneurs involved are each registered for VAT purposes in different Member States (France, the Netherlands, Germany) and have VAT identification numbers from different Member States. The residence of E1 and E2 in the same Member State is not relevant for the assessment (see also 25b. 1. (3) UStAE).
The first purchaser E2 is therefore free to choose any VAT identification number with the exception of VAT identification numbers from France (country of departure) or Germany (country of destination) in order to meet the requirements for an intra-Community triangular transaction.
The first purchaser E2 may not be a resident in the country of destination (Germany) according to § 25b (2) No. 2 UStG.

Failed triangular transaction I (when the last purchaser picks up the goods):

Facts:

A Polish entrepreneur E3 (= last purchaser) orders a machine from a German wholesaler E2 (= first purchaser). He, in turn, orders this machine from the French manufacturer E1 (= first supplier). The last purchaser E3 has the machine picked up at the first supplier E1.

The consequences of the failed triangular transaction I:

The supply from the French manufacturer E1 (= first supplier) to the German wholesaler E2 (= first purchaser) is a domestic supply which is per § 3 (7) (1.) UStG taxable in France.
The supply from the German wholesaler E2 (= first purchaser) to the Polish entrepreneur E3 (= last purchaser) is an intra-Community supply which is also taxable in France according to § 3 (6) UStG but is tax exempt.
In the example given, the German wholesaler E2 has to obtain a VAT registration in France. Consequently, the French manufacturer E1 must include the French VAT in his invoice to the German entrepreneur E2 (who now acts with a French VAT identification number). The German entrepreneur E2 has the right of deduction due to his registration in France. With the invoice from the German entrepreneur E2 (with the French VAT identification number) to the Polish entrepreneur E3, an intra-Community supply in France and at the same time an intra-Community acquisition in Poland is realised.
In summary, it can be noted that the simplification rule of the triangular transaction does not apply if the last purchaser arranges the transport, but also in the event that the entrepreneur in the middle arranges the transport or dispatch, but acts in his capacity as a supplier. Pursuant to § 3 (6a) sentence 4 UStG the entrepreneur in the middle can either act as purchaser of the incoming supply from his vendor or as a supplier of the outgoing supply to his customer if he initiates the transport/dispatch. In this example, if the German wholesaler E2 arranges the transport and uses a French VAT identification number against the French manufacturer E1, he would act as supplier in accordance with § 3 (6a) sentence 5 UStG and the exempt supply would take place between E2 and E3 as in the example above. On the other side the supply between E1 and E2 would be taxable in France.

Failed triangular transaction II (when the goods are delivered to a 4th entrepreneur):

Facts:

A German entrepreneur (E3) orders a machine from his French merchant (E2). The latter, in turn, orders this machine from the Polish manufacturer (E1). The Polish manufacturer delivers the machine as per the order to Germany, but not to the entrepreneur E3, but to E3’s customer E4, who is also established in Germany.

The consequences of the failed triangular transaction II:

As already noted, only 3 entrepreneurs may take part in a triangular transaction (§ 25b (1) (1.) UStG) and thus it sounds at first rather unusual if a 4th entrepreneur is "mistakenly" involved at the end of the supply chain. But this is not so uncommon, as you can see in the example.
It is often not considered that a triangular transaction is already destroyed by the 3rd (German) entrepreneur indicating a delivery address (of another entrepreneur or end customer), even if such is also located in Germany.
Furthermore, the theory must also be clearly distinguished from the practice. If the parties involved in the chain transaction are not affiliated companies, the individual entrepreneur involved will often not have knowledge of the existence of the other entrepreneurs involved. It is therefore impossible for him to recognize that a triangular transaction may not exist due to the number of other entrepreneurs involved.
It is even more surprising when one considers that many Member States (but not Germany) recognize triangular transactions in which the goods are not delivered to the 3rd entrepreneur in the chain, but to his customer in the same Member State. On the other hand, according to 25b.1. (2) UStAE, a triangular transaction involving 4 entrepreneurs is recognized when the three supplying entrepreneurs (of the triangular transaction) in immediate succession are at the end of the supply chain.
In the example described, the French entrepreneur E2 would be obligated to register in the Member State of arrival (Germany) and act with his German VAT identification number. If he fails to do so and acts with his French VAT identification number, a so-called double acquisition takes place. I.e. he realizes an intra-Community acquisition in Germany and simultaneously an intra-Community acquisition in France due to acting with the French VAT identification number. He is obliged to pay the VAT (acquisition tax) in both Member States (and thus twice), but is not entitled to reclaim this tax due as input VAT in France. This double acquisition ceases to apply only when he proves the taxation of the intra-Community acquisition in Germany (§ 3d UStG).

This side is just an excerpt. Would you like to have access to additional information on triangular transactions und further examples?

Special case of a triangular transaction subsequent to an import
Triangular transaction with third country reference
Triangular transaction with 4 entrepreneurs
The detailed preconditions for a triangular transaction (12 points)

The above explanations are just an excerpt from the translation of the German-language page www.dreiecksgeschaeft.de. Via registration, you gain access to the complete translation of this page, as well as full access to www.chain-transaction.de and www.chaintransaction-calculator.de. You will be able to retrieve about 5000 examples of chain transactions (and triangular transactions) via the chain transaction calculator. You can find further information on this HERE.

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In addition to the above notes, see excerpts of the relevant legal provisions relating to triangular transactions under the following links:

Note to the links to laws, guidelines and regulations: With the exception of the Directive of the VAT system, these are in German (also in the full version).

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