Intra-Community triangular transactions are subject to complex VAT regulations, as the regulation always applies when entrepreneurs from several countries carry out sales transactions with each other “in chain”. Correct invoicing plays a central role here. Errors can lead to unexpected tax liabilities, which is why it is important to comply precisely with the legal requirements.
What is an intra-Community triangular transaction?
An intra-Community triangular transaction is a special case of chain transactions and occurs when goods are sold by a supplier in one EU Member State to a trader in another EU Member State – but via an intermediary in a third Member State. A classic example: The first supplier is based in the Netherlands, the intermediary in Germany and the end customer in Poland. The goods are transported directly and immediately from the Netherlands to Poland and thus go directly from the first trader in the chain to the last trader.
For VAT purposes, the so-called “moving supply” is usually attributed to the first supplier (the Netherlands), who delivers to the German intermediary. The subsequent delivery by the intermediary to the Polish entrepreneur is considered an “unmoved delivery” and generally leads to VAT registration obligations in the destination country, as this usually results in a taxable intra-Community acquisition plus a subsequent taxable local delivery.
Simplification rule: No tax liability for the intermediary in the country of destination
In order to avoid the German intermediary having to register for VAT in the country of destination (here: Poland), there is a special simplification rule in accordance with Section 25b (3) UStG. This states that the intermediary is exempt from the obligation to register in the country of destination if certain requirements are met, including the appearance of the respective entrepreneurs with the VAT ID number of “their” member state.
One of the most important – but sometimes neglected – requirements is correct invoicing. The German intermediary must issue an invoice to the Polish end customer in accordance with Section 14a (7) UStG. This invoice must explicitly state that it is an intra-Community triangular transaction and that the final customer (in this case the Polish entrepreneur) is the tax debtor. Important: VAT must not be shown separately on the invoice. As a result, if the simplification rule is applied correctly, both services can be invoiced tax-free so that the middle entrepreneur does not have to register in the destination country.
Consequences of incorrect invoices and correction options
Incorrect invoices can have considerable consequences. If the German intermediary does not include the required information in the invoice, it will be liable for tax in Poland and must register for VAT there. This applies even if it appears to be only a formal error, such as the absence of a reference to the tax liability of the end customer or the reference to the application of the triangular transaction. A subsequent correction of the invoice does not help in this case.
Current case law on this by the BFH
The Federal Fiscal Court (BFH) clarified in partially identical rulings from July 17, 2024(XI R 35/22 & XI R 34/22) that only formal defects in the invoice can be corrected retroactively, but not material defects. However, the reference to the transfer of the tax liability or the application of the triangular transaction is not a formal, but a material defect – in contrast to the perhaps misleading interpretation of previous ECJ case law, e.g. in the
In the case of significant errors, such as the absence of the triangular transaction reference, a subsequent correction therefore has no retroactive corrective effect. As a result, this means that a subsequent correction of the invoice does not change anything in the past, but instead means that a correct invoice is issued for the first time.
The judgments are in line with the preceding ECJ case law on intra-Community triangular transactions in the Luxury Trust case of December 8, 2022, C-247/21).
Practical impact
In addition to the consequences in Poland – the intermediary had failed to register for VAT purposes there during the relevant period and had declared neither an intra-Community acquisition nor a local subsequent delivery – the failed triangular transaction had consequences in Germany in particular. The provision of the German VAT ID and the lack of evidence of actual taxation of the intra-Community acquisition in Poland resulted in a “penalty tax” in accordance with Section 3d sentence 2 UStG. The tax on this fictitious intra-Community acquisition in the country whose VAT ID number was used vis-à-vis the upstream supplier (here: Germany) is owed until the actual intra-Community acquisition has been proven or is deemed to have been taxed due to the triangular transaction.
Therefore, if the intermediary is able to make up for past taxation by declaring the intra-Community acquisitions in Poland, at least the tax pursuant to Section 3d sentence 2 UStG will be waived; however, this will not have retroactive effect, meaning that interest will have to be paid on the difference.
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Conclusion:
Correct invoicing is what counts!
In the case of intra-Community triangular transactions, companies must take particular care when issuing invoices. Correct identification of the triangular transaction and reference to the tax liability of the final customer are mandatory requirements in order to benefit from the VAT relief.
In addition to punitive taxation in accordance with sec. 3d sentence 2 of the German VAT Act, incorrect invoices can, in particular, lead to a tax liability in the country of destination, which can no longer be avoided even by subsequent corrections. The BFH has also finally closed the door to the retroactive “healing” of unsuccessful chain transaction constellations in which attempts were made in the past to avoid registration in the country of destination by retroactively applying the chain transaction regulation. This attempt was regularly made if it was subsequently discovered – e.g. during tax audits – that the chain transaction had been incorrectly invoiced.
The author: Sven Sistig
Sven Sistig has been working in national and international tax law for 12 years, with a focus on VAT advice and support for start-ups, (online) retailers and influencers. After holding positions at Deloitte and Flick Gocke Schaumburg, he most recently headed the tax department at ABOUT YOU.
