Triangular trade

What it means

Triangular trade is a simplified VAT regime for a chain transaction between three persons identified for tax in three different member states, where the goods move directly from the first supplier to the final customer.

The point is that the middle party need not register in the destination state. The tax liability shifts to the last party in the chain, who declares and deducts it in their own return.

Triangular trade is a special case of a chain transaction. In an ordinary chain the transport is attributed to a single supply, which is the intra-Community supply, and the other supplies are domestic in the state of departure or arrival. The simplification only removes the middle party’s registration; it does not change the rules for attributing the transport.

How it works in practice

The conditions are strict and all must hold: three different parties with valid VAT IDs in three different states, a single transport straight from the first to the third, the middle party not established in the destination state, and an invoice referring to the simplification and the reverse charge.

The transaction is reported in the return and under a specific code in the middle party’s EC sales list. Without the right code the treatment is challenged, even where it was substantively correct.

When a Slovak s. r. o. is the middle link, buying from a German supplier and selling to a Czech customer, we set up the documents before the first delivery: the supplier’s invoice must be made out to the Slovak VAT ID, the transport document must show the goods going straight to the Czech Republic, and the company’s own tax document must carry the required wording. That setup then holds for the whole series of deals.

What to watch out for

With four or more links in the chain the simplification does not apply and the transport has to be attributed under the place of supply rules - the commonest reason for having to register abroad after the fact. It also fails where the customer collects the goods and the transport attaches to a different link than assumed.

The simplification fails if the middle party uses a VAT ID of the state the goods leave from or of the destination state. It then faces registration abroad and additional tax on every deal reported that way, which is why we check all three parties’ numbers in VIES before delivery.