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Transitional arrangements for intra-EC supplies to VAT registered customers in acceding countries: April 9, 2004.

On April 9, 2004, TEI President Raymond G. Rossi responded to a March 22, 2004, letter from Stephen Bill of the European Commission on the practical implications of making intra-EC supplies of goods to VAT-registered customers in Acceding Countries on or after 1 May 2004. The letter was prepared under the aegis of TEI's European Chapter with assistance from the International Tax Committee. TEI's March 1, 2004, letter to Mr. Bill was published in the March-April 2004 issue of The Tax Executive.

On behalf of Tax Executives Institute, I would like to thank you for your 22 March 2004, letter responding to TEI's concerns about the practical implications of making intra-EC supplies of goods to VAT-registered customers in Acceding Countries on or after 1 May 2004. TEI appreciates your confirmation that VAT numbers may be verified by directly contacting the tax authorities of an existing Member State. We are also pleased to learn that the VAT Information Exchange System (VIES) database will be available for the on-line verification of customer VAT-registration numbers in Acceding Countries. We also welcome your efforts to encourage the tax authorities of the Acceding Countries to provide information on their VAT rules, including the process for applying for a VAT registration in these countries.

Your letter focused primarily on the ability of suppliers to verify on-line VAT registration numbers of companies in the Member States, including the new countries that will join the EU in May. TEI remains concerned, however, about the delays in receiving notices of their VAT numbers that companies not currently registered may have and the problems this will cause.

VAT Registration

In many Acceding Countries, the creation of new EU VAT-registration numbers will simply involve adding a country prefix to an existing domestic VAT-registration number. This is not the case, however, in Slovakia where the tax authority will issue new VAT-registration numbers in April 2004 to all businesses that are required to be registered for VAT in that country (both established and non-established). Clearly, this last-minute issuance creates problems for businesses operating in Slovakia. In addition, taxpayers are uncertain whether other countries may follow suit.

Businesses are genuinely concerned that they will not receive their EU VAT registration numbers until after 1 May 2004, or so late in April that it will be impossible to update billing systems, thereby preventing businesses from providing new registration numbers on invoices and in VIES submissions, etc.

The problem of obtaining a VAT registration number in an Acceding Country seems to be especially acute for "foreign" non-established businesses. The tax authorities in many Acceding Countries do not recognise the concept of a VAT-only registration and have mechanisms in place only for VAT registrations of foreign businesses that incorporate a local branch. In time, it is likely that the concept of a VAT-only registration will be recognised. During the transitional period, however, the lack of a mechanism for this type of registration and the questions that will arise will almost certainly lead to delays. TEI's members have experienced difficulties in all Acceding Countries when seeking a VAT-only registration, with the Czech Republic and Slovakia posing particular problems. We urge the Commission to work toward a resolution of this issue as soon as possible.

These issues were discussed with you recently during a conference in Hungary and we appreciate your commitment to follow-up with the tax authorities in the Acceding Countries. As we discussed, TEI's concerns include issues relating to--

* Uncertainty regarding the ability to zero-rate cross-border supplies;

* The inability to charge and account for VAT; and

* The lack of penalty relief during a transitional period following 1 May 2004.

The limited time now available to address these issues further emphasises the need for transitional relief, as outlined in our letter of 1 March 2004.

TEI Recommendations

For the sake of ease of reference, TEI's 1 March 2004, recommendations are restated below:

* All Acceding Countries and existing Member States should be encouraged to relax the requirement for an EU-compliant VAT registration number to support zero-rating for a transitional period commencing 1 May 2004, and ending on 31 December 2004.

* During this period, a customer's domestic VAT registration number in an Acceding Country should be accepted as sufficient evidence of taxable status to support zero-rating of intra-EU trade, provided that the supplier has taken reasonable steps to confirm that the customer is in business and likely to be VAT registered (e.g. credit checks, checks on trade register details, etc.).

If the customer does not have an existing domestic VAT number, but has applied for VAT registration, zero-rating should also be allowed for intra-EU trade, if the customer has provided evidence of the registration application. The customer should be required to advise the supplier of its new VAT registration number within the transitional period.

* Suppliers should not be required to reissue or amend any invoices issued to customers in Acceding Countries for intra-EU supplies made during the transitional period where an old VAT registration number has been used or evidence of the VAT application has been obtained. Again, this should be subject to the suppliers obtaining the customer's new VAT registration number by 31 December 2004.

* Countries where zero-rating only applies if a VIES statement is available to confirm that the customer VAT number is valid, should suspend this rule during the transitional period (for customers providing a VAT registration number from an Acceding Country).


Tax Executives Institute appreciates this opportunity to present our views on the practical issues relating to trade with the Acceding Countries and commends the work of the Directorate-General Taxation and Customs Union in trying to ensure the smooth integration.

These comments were prepared under the aegis of TEI's International Tax Committee, with guidance from TEI's European Chapter. If you have any questions about the Institute's views or need additional information, please contact the Chair of the European Chapter's Indirect Taxes Committee, Fabio De Angelis at 41.21.924.2501 (, its Vice-Chair Mark Keogan at 44.11.321.54908 (, or Fred F. Murray or Mary L. Fahey of the Institute's legal staff at 1.202.638.5601 ( or
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Title Annotation:value added tax; European Union
Publication:Tax Executive
Date:Jul 1, 2004
Previous Article:TEI files comments on IAS 12: July 27, 2004.
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