Not every transaction that appears to be an intra-Community supply or acquisition of goods must necessarily be classified as such. An example? The call-off stock procedure, which is one of the simplifications in the VAT settlement of cross-border supplies of goods within the European Union. The key benefit of this mechanism is that there is no need to (i) register for VAT in another tax jurisdiction and (ii) recognize a non-transactional intra-Community acquisition of goods (WNT) when they are moved to a warehouse in another EU country. As a result, the VAT settlement obligation is transferred to the purchaser, who reports the intra-Community acquisition of goods in the usual manner, while the seller recognizes the intra-Community supply of goods at a 0% rate. Sounds attractive? It certainly is! However, it's important to keep in mind that using this mechanism requires meeting specific conditions. In this article, we explain exactly what the call-off stock procedure is and what requirements must be met in order to use it safely.

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Call-off stock – (un)usual movement of goods in the world of VAT

In the case of standard movement of goods by a given economic operator between Member States, e.g. in a situation where there is a desire to build up stock abroad for subsequent sale in the territory of a given country, we are dealing with a so-called fictitious supply and acquisition. What does this mean in practice? From the point of view of a supplier who sends goods, e.g. from Germany to their warehouse in Poland, they must:

  • recognize the intra-Community supply of goods (ICS) in the country of dispatch,
  • and at the same time – as the same entity – recognize the intra-Community acquisition of goods (ICA) in Poland.

As a result, this means that it is necessary to register for VAT in the country to which the goods have been moved (in this case, Poland), submit declarations, and report non-transactional intra-Community acquisitions. This obviously entails administrative and record-keeping obligations and potential costs. Only the subsequent sale of the goods from the warehouse to a local contractor constituted a separate transaction subject to VAT in Poland.

The remedy for the above is the possibility of applying the call-off stock procedure. This special simplification allows foreign VAT taxpayers to move goods to a warehouse in another EU country (in the above example: in Poland) without the need to immediately recognize intra-Community acquisition of goods and register for VAT purposes, provided that certain conditions are met, including:

  • the supplier does not have its registered office or a permanent place of business in the EU country to which the goods are being moved;
  • the recipient of the goods (purchaser) must be known at the time of movement – an agreement must be concluded between the supplier and the purchaser governing the terms of cooperation in this regard;
  • the recipient must be an active VAT taxpayer registered for EU transactions (have a valid EU VAT number);
  • the goods must be delivered to the recipient within 12 months of their entry into the warehouse;
  • the supplier keeps appropriate records covering movements under call-off stock,
  • the transaction is properly reported in the EU VAT summary information (by both the supplier and the purchaser).

Some of the above conditions are obvious, such as the requirement for the buyer to be an active VAT taxpayer, while others may raise doubts as to their interpretation and the related obligations, especially in the context of concluding an agreement and keeping records. We explain what this is all about below.

How to reach an agreement with the recipient, or... what exactly is meant by this “agreement”?

One of the conditions for using the call-off stock procedure is the existence of an agreement with the recipient who is ultimately to collect the goods from the warehouse. However... VAT regulations do not clearly specify what this agreement should look like or what it should cover, etc. As a result, there is uncertainty as to what form the agreement can/should take and what it should include in order to be effective in the event of any questions from the tax authorities. According to the European Commission's explanatory notes on this subject: “The VAT Directive does not specify or impose any type of agreement that must exist between the supplier and the intended purchaser. However, it can be assumed that if there is an agreement between the two parties under which the intended purchaser is entitled to collect goods of a specified type after paying a specified price (and thus to acquire ownership of those goods), then the condition of a “binding agreement between the two taxable persons[1]” is fulfilled. What should be understood by an agreement? Is it necessary to have a comprehensive document setting out the framework for cooperation under call-off stock, or is an annex or agreement sufficient? In fact, any form should be considered valid as long as it addresses the information specific to cooperation under the procedure in question and the agreement is precise and clear as to the arrangements. In view of the above, it is worth reviewing your current relations with your contractors and making sure that you have a document (agreement?) dedicated to the above procedure and that it contains elements/provisions that meet the requirements for call-off stock. Sometimes even a slight clarification/change in the provisions may be decisive for the procedure to be considered valid (possibility of recognizing that the simplification can be used/is used to secure the required conditions, etc.).

How detailed should the records be in the call-off stock procedure?

VAT regulations require taxpayers using the call-off stock procedure to keep records containing certain specific information. Although the general scope of data required in the records has been defined quite clearly, no indication has been given as to the form in which they should be kept or the level of detail required, e.g. whether the information on the value, description and quantity of goods arriving at the warehouse should refer to the type of goods or to individual items. In the above-mentioned explanatory notes, the European Commission emphasized that EU Member States should approach the issue flexibly and that the records should be practical rather than bureaucratic. As a result, the question arises: how should this issue be approached? It is worth analyzing the method of delivery and the data that is required on the one hand, and the data that a given economic operator has on the other, taking into account the effort involved in obtaining/processing it, etc. It is possible to maintain compliant records while ensuring the process remains practical and efficient? The answer is yes! You should focus on the most important information and make the idea of call-off stock clear (presenting a practical approach to the topic), while limiting excessive formalism (the records should be detailed enough to make it clear how a given entity operates in relation to call-off stock).

With the above information in mind, we encourage you to contact us if you use or are considering using the call-off stock procedure in your own business – we will check whether the documentation/records used in connection with the simplification in question meet VAT requirements and whether the process is implemented fully and effectively.

[1] Explanatory notes on changes to EU VAT rules for call-off stock procedures, chain transactions and intra-Community supply exemptions (“quick fixes for 2020”).