Chain transaction

What it means

A chain transaction is where the same goods are sold successively to several parties but physically transported only once, directly from the first seller to the last buyer. For example, a Slovak company buys goods from an Austrian manufacturer and sells them to a Polish customer, with the goods going straight from Austria to Poland.

For VAT, the key point is that only one supply of goods in the chain can be an exempt intra-EU supply: the one to which the transport is allocated. The other supplies are domestic, in either the country of dispatch or the country of arrival, and the place of supply changes accordingly.

Since 2020, EU rules determine which supply the transport is allocated to when an intermediary in the chain arranges it. It depends on which VAT number the intermediary gives its supplier. A special simplified case with three parties from three states is the triangular transaction.

How it works in practice

For every chain transaction we first map out with the client the flow of goods and invoices and establish who arranges transport. On that basis we allocate the transport to one supply and determine which supply is exempt, which is taxable, and in which country.

Incoterms help define delivery terms, but they do not determine VAT on their own. What counts is who actually arranges and pays for the transport and what documents prove it, such as the transport contract, CMR or proof of receipt.

We report the exempt supply in the EC sales list with the customer’s VAT number verified in VIES. If the chain gives rise to a duty to register in another state, we deal with it before the transaction, not afterwards.

What to watch out for

If the transport is allocated to the wrong supply, one company claims an exemption it is not entitled to and another fails to pay the tax it owes. The error shows up when EC sales lists are matched between countries and leads to additional tax and fines, often in another country.

Chain transactions are a common vehicle for carousel fraud. With new partners, unusually attractive prices or goods nobody ever sees, we therefore advise extra caution and checks on counterparties.