What is a triangular transaction in EU VAT?
A triangular transaction (also called a chain transaction or ABC transaction) involves three parties in three different EU member states: A sells to B, and B sells to C, but goods move directly from A to C. Simplified triangulation rules allow B (the middle party) to zero-rate its sale to C and avoid registering for VAT in C's country, provided the conditions of the simplification are met. Without simplification, B would need a VAT registration in C's country.
What conditions enable the EU triangulation simplification?
EU triangulation simplification (Article 141 EU VAT Directive): (1) Three parties each in different member states; (2) Goods dispatched from A's member state directly to C; (3) B is registered in a third member state; (4) B does not have a fixed establishment in C's member state; (5) C must account for acquisition tax as the final buyer; (6) B's invoice to C must indicate that triangulation simplification applies. When valid, B avoids registering in C's country.
Frequently Asked Questions
- What must appear on a triangulation invoice?
- A triangulation simplification invoice from B to C must include the notation 'Reverse charge - intra-community triangular transaction (Article 141 of EU VAT Directive)' or equivalent. B's VAT number (from their home member state), C's VAT number, and the invoice details are required as standard. B's invoice to C is zero-rated because C accounts for the acquisition tax.
- What are the risks if triangulation simplification is incorrectly applied?
- If triangulation simplification conditions are not met (e.g., goods do not move from A directly to C, or B has a VAT registration in C's country), the simplification does not apply. B would need a VAT registration in C's country and must charge and account for VAT there. Back-dating a VAT registration and correcting incorrectly filed returns is burdensome and may attract penalties. Careful verification of the facts and conditions before applying the simplification is essential.