Structuring Intra-European Goods Sales—Part II

“Call Off” Stock, Consignment Stock and Distance Selling

Managing the VAT consequences of an international supply chain is vital for cross-border businesses.

A conventional transaction that involves a direct transfer between businesses can be complicated enough. But what if the supplier holds goods for his customer in a warehouse? Or what if the customer is a private individual rather than a taxable business? Welcome to the complex world of “call off” stock, consignment stock, and distance selling.

In August, we published Part I of this series, on triangular transactions. Part II addresses “call off” and consignment stock, and distance selling. These posts are based on a Bloomberg Tax INSIGHT article, VAT—Issues and Pitfalls Around the Movement of Goods Internationally, by Robert Marchant of Crowe UK. 

To consider the rules governing “call off” and consignment stock, and distance selling, consider the example of a large children's toy retailer and wholesaler, “Company A,” based in the U.K. 

Stock Held for Customers

Call off stock is goods held for a particular customer, usually at their own premises, with title transferring when they remove the stock. Consignment stock is also held in a warehouse, but may be sold to a number of different customers. From a VAT perspective this difference is key, as consignment stock can lead to an overseas VAT registration obligation, while call off stock generally doesn’t. 

Where goods are held for a customer and they are using the goods either in their own business or will be reselling them on to their customers, this can be treated as call off stock. 

In our example, Company A holds call off stock in Italy for an Italian customer at one of the customer's warehouses. When the goods were moved from the U.K. to Italy, Company A was able to zero rate the supply and treat it as a normal intra-EU dispatch with the VAT registered Italian customer accounting for acquisition VAT. 

Company A is also moving consignment stock to a warehouse in Portugal. It has identified some potential customers: however, at the moment it is not clear who will be sold which goods. The movement of the consignment stock has to be treated by Company A as a movement of own goods. As a result, Company A will need to register for VAT in the EU member state of delivery (in this case Portugal) so that it can zero rate the dispatch on the U.K. VAT return. The movement would then be reported as an acquisition in Portugal by Company A. When the goods are subsequently sold to Company A's customers, it will account for VAT as necessary, for example charging Portuguese VAT on domestic sales to Portuguese customers. 

The movement of own goods can result in overseas VAT registration obligations. Not only does this arise from supplies of consignment stock, but also from supplies made on a sale or return basis (i.e. the supply only occurs when the customer advises they are going to adopt the goods), and also where goods are taken overseas and sold at a pop-up shop or a trade exhibition. This is because, for non-established persons, as soon as a taxable supply is made in that country a VAT liability generally arises. 

A business can be wholly compliant for VAT and then may find itself having to adjust its usual supply chain slightly to meet the needs of a customer. These one-off transactions can easily trigger overseas VAT registration obligations, which in the course of normal business may not always be picked up. From experience though, these are matters which are typically identified during a due diligence process, and as there are often harsh penalties arising in other EU countries for late registrations, this can put businesses in a sticky position. 

Distance Sales

The above supply chains all involved Company A's wholesale customers. However, following a lot of queries from individuals, Company A recently decided to start selling to persons acting in a private capacity, from its U.K. warehouse. Sales are predominantly being made to a number of individuals in Belgium and The Netherlands. 

Company A is currently charging U.K. VAT on these supplies; however, it must monitor the value of supplies it makes to each individual country. Thresholds vary from country to country, but broadly if sales to one country exceed 35,000 euros in a calendar year, Company A will need to register for VAT locally in that member state from when it exceeded the distance selling threshold. 

At the end of May 2018, Company A realized it had exceeded the distance selling thresholds in Belgium (35,000 euros) and the Netherlands (100,000 euros), so it needs to register for VAT in these countries. As a result it will account for local VAT on supplies made to Dutch and Belgian individuals and will have to submit VAT filings in these jurisdictions. 

In terms of the general landscape, a simplification does not yet exist for distance sales of goods. However, there is a simplification for services, known as the ‘Mini One Stop Shop’ (“MOSS”). MOSS allows a VAT-registered business providing certain services to individuals in different member states to account for VAT and submit filings in only one country. This avoids the need for the business to register and account for VAT in each country where it would otherwise be required to do so. While MOSS currently only applies to certain services, the intention is the scheme will be extended to goods in 2021. 

Where Does Brexit Leave Us?

It is still not clear exactly what a post-Brexit world will look like for VAT, all we can really expect is that some things will undoubtedly change. This could include the U.K. losing some of the simplifications which U.K. traders can currently rely on. As such, it is important for businesses to get to grips with their supply chains and think about those crunch points where Brexit may have the most significant impact. 

Planning Points

The starting point is to understand existing legal and physical supply chains and how VAT is being accounted for. By reviewing existing supply chains, it should be possible to establish whether there are any unexpected VAT costs arising or situations where there are unnecessary VAT registrations. Where businesses are considering new supply chains (for example, selling into a market for the first time), they must consider the registration implications, and assess whether call-off stock or distance selling rules can help.


To access Robert Marchant’s article and further in-depth analysis and expertise, request a free trial of Bloomberg Tax.