VAT zero rate on collection: strict proof required for EU supplies

In intra‑Community supplies, it is common for the parties to agree that the customer collects the goods from the supplier on an “ex works” or “ex warehouse” basis. In such situations, it is particularly important for the supplier to have sufficient evidence to justify the application of the VAT zero rate. A Statement of Transportation of Goods may serve to support the intra‑Community nature of the supply. However, strict requirements must be met to use such statements, as illustrated in a recent case concerning trade in second‑hand cars, in which both the District Court of Gelderland and the Court of Appeal Arnhem‑Leeuwarden ruled in favour of the Dutch tax authorities. 

Legal framework 

For intra‑Community supplies, the VAT zero rate applies only if the goods: 

1. are transported as part of the supply to another EU member state; and 
2. are subject to VAT in that member state as an intra‑Community acquisition by a customer holding a valid VAT identification number. 

The burden of proof that the VAT zero rate has been correctly applied rests with the supplier. The supplier’s records must contain sufficient evidence in this regard; without adequate proof, the general rule is that Dutch VAT is due in the place where the customer collects the goods in the Netherlands. 

According to State Secretary of Finance policy, the intra‑Community nature of a supply may be demonstrated by means of a Statement of Transportation of Goods if the following requirements are met:  

• The customer must be a regular customer. Only where a consistent and reliable trading relationship exists does the supplier have sufficient insight into the customer’s business practices and reliability. On that basis, the supplier may reasonably be satisfied that the goods are actually transported to another EU member state. 
• The statement must be completed, signed and maintained correctly and with due care by the person taking delivery of the goods.  
• The statement must contain at least the following information: the name of the customer and, where the customer does not personally take receipt of the goods, the name of the person acting on the customer’s behalf; the registration number of the vehicle used to transport the goods; the invoice number specifying the goods supplied; the place to which the goods are transported; and a confirmation that the customer is willing, upon request, to provide the Dutch tax authorities with further information regarding the destination of the goods. 
• The statement must be supported by additional records confirming the intra‑Community nature of the supply. Such supporting evidence may include email correspondence, WhatsApp messages, purchase orders, order confirmations, CMR consignment notes or other transport documents. 

The case: failure to meet the requirements for a valid Statement of Transportation of Goods 

The case before the District Court concerned transactions in which the second-hand cars were collected in the Netherlands. In such situations, the general rule is that the supply is subject to the standard Dutch VAT rate of 21%. A deviation from this rule is possible only if all requirements for applying the zero rate are met. According to the court, the nonresident (Bulgarian) customer could not be considered a regular customer because it had only been established recently, no consistent trading relationship had been formed and the zero rate had already been applied after the first supply using the Statement of Transportation of Goods. The court noted that increased cautions should be used in the case of high‑risk goods, such as second‑hand cars. 

The court also determined that the Statement of Transportation of Goods contained serious deficiencies. Essential information was missing, including the date of collection, destination address, registration number of the means of transport, and a consistent and verifiable signature. Further, other supporting documents were missing from the records and the payments were largely made in cash. In light of these circumstances, the court held that the supplier had failed to sufficiently demonstrate that the cars were actually transported to another EU member state in the context of the supplies. The VAT zero rate had therefore been incorrectly applied. 

The Court of Appeal Arnhem‑Leeuwarden upheld the decision of the District Court on appeal, as well as the imposition of a 25% administrative penalty for gross negligence. 

Practical considerations 

Businesses supplying goods in the Netherlands on an “ex works” or “ex warehouse” basis where the customer collects the goods and transports them abroad should be aware that the VAT zero rate can be applied to such collection transactions only if strict requirements are met. A Statement of Transportation of Goods may serve as additional evidence, but it may be used only where regular customers are involved. A customer does not automatically qualify as a regular customer, and a single prior transaction is insufficient. Moreover, the Statement of Transportation of Goods must be completed in a comprehensive and verifiable manner and cannot function as a substitute for additional evidence regarding the actual transport of the goods. If the zero rate is applied without sufficient supporting evidence, the supplier runs the risk of additional VAT assessments, including administrative penalties and interest. 

Further information 

Would you like to know whether your records contain sufficient evidence to substantiate the application of the VAT zero rate, or do you have questions regarding the use of Statements of Transportation of Goods? Please feel free to contact one of our advisors.