"Europe: "Be aware of strict conditions of zero VAT rate"

Those supplying goods in the Netherlands, pay 21% or 6% VAT on it. In some cases those who supply goods abroad can use the 0% VAT rate. Application of this free rate is tied to strict conditions. Now that the taxman is checking this so called carousel fraud more strictly, those trading in good faith who are unaware of the conditions are being caught. VAT specialist Maurice Prickartz of accountants and tax advice bureau BDO is sounding the alarm. "The burden of proof on suppliers is copious."

VAT fraud in Europe is an annual business of around 200 billion euros. Due to information exchanged between the tax services, the checks are becoming better and the taxman is better able to push back the carousel fraud. "Of course it is fine that fraudsters are being dealt with, but we see that honest businesses also don't meet the condition. This is why we have to raise awareness," says Maurice. "This includes export outside of the EU. Recently the tax service was proven right in a case with a fruit and vegetable trader who exported to Russia. When companies can't answer for their burden of proof, the additional collections including fines can be high."

"To apply the free rate for deliveries within the European Union, suppliers must meet two conditions. Thus, the supplier must demonstrate that the goods have left the Netherlands and the customer indicates an intra-community acquisition in the country of arrival of the goods. This second condition is relatively easy to meet by requesting the foreign VAT number of the buyer. It is important that the buyer's VAT number is checked, for instance on the European Commission website. This has to be recorded and take place periodically," says the BDO specialist. "The first condition in which it has to be demonstrated that the goods were transported abroad turns out to be a lot more difficult in practice, particularly when the buyer collects the goods themselves."

"The secretary of Finance has even indicated that in takeaway transactions with new customers, regardless of the burden of proof, Dutch VAT must be calculated. Suppliers are afraid that they will loose out on turnover when the the Dutch VAT has to be calculated to the foreign buyers and many businesses are opting to apply the free rate anyway. Turnover with risks is preferred to none. However, it is important that businesses are aware that the taxman can additionally collect the Dutch VAT if the burden of proof is not met. If in doubt I recommend always invoicing the Dutch VAT. The supplier is always 100% responsible for the application of the free rate. If the burden of proof can be identified through a combination of papers and documents that show that the goods have left the Netherlands, such as a declaration of collection or transport, lading, customer correspondence, order confirmation, shipping documents, receipts, insurance policies, etc. "

"The amount of court cases regarding the application of the free rate are countless, with a high success rate for the taxman. The trend these days is that the taxman carries out investigations based on the sampling method. Instead of investigating the administration integrally, the taxman will select a number of transactions randomly. If a certain percentage of them are wrong, this mistake is extrapolated to all transactions. This results in a small mistake leading to very serious additional collections. A frequently heard cry from businesses is that it was precisely the wrong transactions that were investigated, but the taxman doesn't care. Besides additionally collecting the VAT, which often cannot be recovered from the foreign customer, there can also be fines that can even reach 50% in some cases!"

For more information:
Maurice Prickartz
BDO
Tel: +31 (0) 10 242 4600
[email protected]
www.bdo.nl