As a result of the free movement of goods and globalization, companies sell products to othermember states of the European Union countless times as part of their economic activities. Under certain conditions, intra-Community product sales may be tax-exempt under the Hungarian VAT Act, in accordance with the EU VAT Directive. One of these conditions for tax exemption is that the product is delivered to another member state. Nevertheless, this fact itself is not sufficient, but it must also be proven in the case of a tax audit. In this article we focus only the transportation and the related evidences as part of the legal conditions of the tax-exempt intra-Community transaction, and we do not investigate the further settings.
Legal presumption has been introduced
Although the Hungarian VAT Act mentions the obligation to provide proof of delivery, it no longer clearly defines the specific method of proof. Previously, we could not find a relevant provision in the EU legislation either, so the possibly different practice in each member state resulted in legal uncertainty. To eliminate this problem and create uniform handling and requirements the Council of the European Union supplemented the VAT implementation decree (hereinafter: Decree) with new regulations. The regulation applies in the member states directly and mandatorily after January 1, 2020; thus, these provisions are also applicable in Hungary. Pursuant to the regulations, if the documents listed in the executive order exist, it must be assumed that the goods were delivered to another member state. In practice, the presumption means that the relevant tax authority cannot ask for additional evidence to prove the delivery, unless it can refute the evidence provided by the client.
The regulation therefore sets up a rebuttable presumption that, in the presence of certain documents, the delivery of the product to another member state is considered justified. It is important, however, that the lack of documents specified in this context still does not mean that the delivery cannot be proved in other ways. The availability of the specified documents merely simplifies the substantiation of the facts.
The presumption means that if the supplier disposes of the documents listed in the Decree, it shall be supposed that the goods were dispatched or transported to another Member State and the respective Tax Authority may not require further proof; unless the Tax Authority rebuts/disprove the presumption.
Nevertheless, if the supplier does not have any documents supporting the presumption laid down in the Decree, it does not automatically exclude the applicability of the tax exemption on intra-Community transaction; however, it may be justified in other ways that the goods were dispatched or transported to another Member State.
What documents must the tax authorities accept?
The documents exhaustively listed in the Decree are divided into two groups. The significance of the division will be detailed later; however, the scope of acceptable documents for the existence of the presumption is therefore the following:
Point 1. direct evidence for the transfer of goods for
example:
- a signed CMR document (3-party
signature) or note
- a bill of lading
- an airfreight invoice or
- an invoice from the carrier of the goods.
Point 2. indirect evidence for the transfer of goods:
- an insurance policy regarding
the dispatch or transport of the goods, or bank documents proving payment
for the dispatch or transport of the goods
- official documents issued by a
public authority, such as a notary, confirming the arrival of the goods in
the Member State of destination
- a receipt issued by a warehouse keeper in the Member State of destination, confirming the storage of the goods in that Member State.
In what round and combination are the documents to be accepted?
However, in the case of intra-Community supply of goods it is not relevant who is responsible for the transport, the documentation or the procedure may change depending on whether the seller or the purchaser or, for the benefit of either of them are arrange the transport.
In case the goods have been dispatched or transported
by the seller, or by a third party on behalf of the seller to be able to apply
the VAT exemption of iC supply the following documentation are requested:
- at least two items of
non-contradictory evidence referred to in point 1. which were issued by
two different parties that are independent of each other, of the seller
and of the purchaser, or
- the seller is in possession of any single item referred to in point 1. together with any single item of non-contradictory evidence referred to in point 2. confirming the dispatch or transport which were issued by two different parties that are independent of each other, of the seller and of the purchaser.
The requirements may be fulfilled practically by presenting a CMR and an invoice from the carrier of the goods.
In case the goods have been dispatched or transported
by the purchaser, or by a third party on behalf of the purchaser to be able to
apply the VAT exemption of iC supply the following documentation is needed:
- the above-mentioned documents
must be available for the seller with the same conditions; further,
- the seller has a written
statement from the purchaser stating that/must include:
- the goods have been dispatched
by the purchaser or by a third party acting on behalf of the purchaser,
and
- the Member State of
destination of the goods
- the date of issue
- the name and address of the
purchaser
- the quantity and nature of the
goods
- the time and place of arrival
of the goods
- the identity of the person
receiving the products on behalf of the purchaser (any explicitly
identifiable data are appropriate)
- the statement must be available to the seller by the 10th day of the month following the sale.
What exactly does rebuttable presumption mean?
The presumption, duly supported by the above documents, means that the tax authority is obliged to accept them as a proof of the delivery, i.e. it cannot ask for other evidence, unless the presumption is rebutted.
However, in addition to the specific rules of the Decree, pay attention to the fact that there must be a clear connection between the documents and the sales to which the exemption applies. Thus, it needs to clearly identify from the above documents and the related documents (for example, the contract or the customer's order) which intra-Community sales they are related to.
It is also important that although the VAT Act does not define who the independent parties are, the interpretative provision of the VAT Act defines the definition of non-independent parties, which must also be applied inversely when examining the adequacy of the available documentation.
Is there any Entry certificate as a sample in Hungary?
Unfortunately, we do not apply an Entry Certificate which may be acceptable in other countries; however, recording all the details of the delivery may help during the tax audit.
The position of the middleman in chain transactions
In the case you act as an intermediary within a chain transaction, to apply the tax exemption on iC supply you should support and organize the transport as a seller. Here is our brief additional explanation about the interpretation of the meaning of „transportation as a seller” within a chain transaction.
If the intermediate taxpayer transports the product, then according to the Hungarian VAT Act, it must be presumed that the intermediary has ordered the transport as a customer. In this case the transaction invoiced to the intermediary would be the tax-exempt intra-Community supply. Consequentially, the intermediary cannot supply the goods to other Member States as a tax-exempt transaction since only one transaction can be tax-exempt within the chain. If you as a middleman act as a seller during the transportation, your supply can be tax-exempt. To achieve this goal, you need to have a tax number in the seller's country and provides it to the seller; therefore, the sale to you cannot be tax-exempt but invoiced with a local tax from where the transport starts.
Are you curious about the Hungarian Tax Authority practice?
We absolutely would like to call your attention that the Hungarian Tax Authority published a guideline on the documents acceptable to prove the intra-Community delivery of goods from Hungary in connection with the Quick Fixes. In this guideline, it is also emphasized that if the above presumption is not applied, the supplier may also prove the iC transport to the satisfaction of the Hungarian Tax Authority with documents previously accepted, prior to the entry into force of Quick Fixes. For example:
- if the seller transports the products with his own means: his own itinerary notes, the seller's written request for delivery within the company, fulfilment certificate of the purchaser, road register etc.; or
- if third parties takes the products out of the country: itinerary notes of independent transport companies, driver's declaration for the transport of goods, route of the TIR-licensed truck recorded in the GPS system, downloadable and printed from the Internet (taxpayer can also be downloaded and printed), other documents certifying the payment of various taxes levied by the means of transport (with the same content as the Hungarian weight tax), proof of foreign refueling, invoice of motorway or tolls, ferry ticket, official weighing station of the axle weight measuring station at the border crossing, voucher issued by postal or parcel service providers etc.
- purchase order, contracts between the parties, invoices, bank accounts etc.
Do not forget that as you can see there are various
aspects of allocating the transport to the parties engaged in the transaction.
The Hungarian interpretation on the party fulfilling the transport (Master of
transport concept) includes the following aspects to be considered:
- who is actually responsible for
the transport
- usually but not necessarily
bears the costs of the transport
- who enters into a contract with
the transport company, or on whom account the transportation company is
contracted, and
- who has the right to instruct
the transportation company
- disposes of the goods during
the transportation
- for example, if one of the parties orders someone else to organize the transport (e.g. communication with the transport company), the party ordering the other participant is to be considered the Master of Transport and not the one who actually communicates with the transport company.
Are there other rules to consider?
However, we do not investigate in this article the further conditions of the tax exempt iC transaction, we highlight one additional note that usually is missing. The tax exempt iC supply of goods shall only apply if the transaction is properly reported in the recapitulative statement.
Further, the above-mentioned documents as a prove must be kept within the statutory limitation period, which is 5 years following the end of the calendar year in which the respective tax return was due (practically, due to the computation method 6 years).
Consequentially, the proof is simpler with some
documents listed in the Decree; however, questionable cases may always arise. We
highly suggest controlling the documents on the delivery regularly since the
legal consequences may be expensive. If the tax authority does not accept the
transaction as a tax-exempt then a tax penalty in general up to 50% of the tax
shortage will be due in addition a late payment interest which is based on the Hungarian prime rate plus 5 percentage points per
annum (currently 16,75%). Should you have any
questions, or you are unsure, do not hesitate to contact with a tax advisor.
