If you don’t mention “reverse charge” on the invoice – no triangulation simplification applies.

(Luxury Trust Automobil, C-247/21, opinion, 14.07.2022)

British, Austrian and Czech companies carried out triangular transactions. Transportation was organized by the Austrian company. There were two sales and one shipment of goods from the UK to the Czech Republic.

The Austrian company, an intermediary, treated these transactions as simplified triangular transactions. It used its VAT number and the VAT number of the Czech counterparty on its invoices. It also indicated on its invoices the clause „tax-exempt intra-Community triangular transaction.” It did not show VAT on the invoice, only the net amount. The Czech buyer turned out to be a „missing trader.”

The Austrian tax authorities found that the Austrian intermediary did not use the correct clause on its invoices. According to Austrian regulations, it should contain an express reference to the existence of an intra-Community triangular transaction and the fact that the end customer is liable for payment of VAT.

The clause on the invoices therefore did not meet the requirements indicated in the regulations. Thus, Austrian tax authorities concluded that the Austrian intermediary should be subject to VAT on ICA in Austria without the right to deduct under the rules of Article 41 of the VAT Directive („penalty VAT resulting from ICA”).

The Advocate General Kokott in her opinion agreed with the tax authorities:

• In the situation of 3 taxpayers (in a chain transaction like this) an intermediary has to register in the 3^rd. He can use however triangulation simplification. When he does not use it successfully, he pays a “penalty VAT” on ICA.
• The case at hand is about a question what effects such a „formal error” in the content of an invoice can have (an error of not indicating expressly on the invoice that the recipient in obliged to account for VAT).
• If one were to apply the court’s previous jurisprudence, then one would have to conclude that it is only a formal obligation, the violation of which should not result in an obligation to pay tax. However, what is important, is not whether it is a „formal” or „substantive” obligation, but what purpose it serves. Only then can the consequences of violating such an obligation be answered.
• The indication on the intermediary’s invoice of the „reverse charge” is important. It causes the buyer to know that the tax obligation has been shifted to him. Therefore, requiring it is not disproportionate.
• If the intermediary does not mention “reverse charge” on the invoice, he does not exercise option of shifting the tax obligation to the buyer. Thus, the application of Article 41 of the VAT Directive takes place.
• The taxpayer can issue the corrective invoice some time after the transaction and thus exercise the option to shift the tax liability to the buyer. But the buyer must be informed of this – that is, he must receive an invoice with this information. Here, however, the buyer was a missing trader. Such a corrective invoice issued after a certain period cannot have retroactive effects.
• „the mention >>Reverse charge<< is required (…). The wording >>Liability for payment of VAT is transferred to the customer<< expresses the same thing (…) it is not necessary to indicate the basis of the reverse charge. The only decisive factor is that the recipient of the supply knows that the supplier assumes that the recipient of the supply is liable for the tax and must pay it in the country of destination.”