When more than 2 parties are involved, the VAT treatment depends on the VAT treatment of the prior transactions:
- ABC (D) transactions involving supplies of goods and which are transported to another Member State or Member States. In that case, it is important to identify in which part of the chain the intra-EC supply and local supply or supplies take place (see below 'Cross border drop shipments')
- ABC transactions involving 3 parties in the supply-chain, which are identified for VAT purposes in three different EU countries, and for which the goods are transported directly from EU country A to EU country C. Under certain additional country specific requirements (not harmonized among the EU member states) such a transaction may qualify as triangulation, so that the respective “simplified triangulation rule” would be applicable
Triangulation
Triangulation is used to describe an ABC chain transaction, which involves three different parties where the products are shipped directly by party A to party C. Party B acts as intermediary, never physically receiving the products.
A cross-border triangulation sale with three parties in three different EU countries has the following VAT consequences. Without any special rules, party B would be considered to take legal title either in the EU country of dispatch of the products or in the EU country of arrival.
If party B is not VAT registered in these countries, it will need to register for VAT purposes in one of these two EU countries.
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Simplified triangulation
- Specific considerations about drop shipments
- Country specify rules apply when triangulation is allowed (country by country deviation). Different local rules apply when Party B is VAT registered in ship-to country where the customer receives the goods
- If the supplier (plant or third party) is not set up in SAP, the ship-from location will not be known during billing and sales
- Standard SAP requires manual intervention
To apply the simplified triangulation measures, the following requirements are set by the EU VAT Directive:
- There must be 3 parties in the supply-chain, which are identified for VAT purposes in three different EU countries;
- Party B, must not be established in the EU country of arrival of the goods (EU country C) and in the EU country of dispatch (EU country A);
- The goods must be transported directly from EU country A to EU country C;
- Party C must be registered for VAT in the EU country where it receives the products (country C);
- The transportation of the goods must be ordered / arranged in the first part of the chain (i.e. between party A and party B).
The simplified triangulation rules do not apply if party B is registered for VAT in the EU country of dispatch and/or established in the EU country of arrival, however not all EU countries apply this rule strictly and there are in practice many country specific requirements.
SAP and triangulation
Due to variations in country-specific rules, triangulation involves navigating different local regulations during VAT determination. This requires careful consideration of local rules when Party B is VAT-registered in either the "ship-from" country or the final "ship-to" country where the customer receives the goods.
If the supplier (i.e., the third-party vendor) is not properly configured in SAP, the "ship-from" location will not be accessible during the standard VAT determination process for billing and sales. As a result, the simplified triangular arrangement often necessitates manual intervention in standard SAP settings. Sales order staff and customer service representatives will need training to manually determine triangulations, and effective detective controls must be established to ensure accuracy in this process.
This manual intervention could be mitigated by enhancing standard SAP functionality to automatically recognize triangular scenarios and incorporate all relevant country-specific rules, thereby facilitating a fully automated VAT determination process.
