Implementation of a new European VAT system – myth or reality?

Will a new European (EU) VAT be integrated in 2022 – a system for intra-European transactions? What will change? How will future changes affect the existing and new business? At European companies and companies registered outside the EU? How will this affect logistics companies operating in international markets as well as their customers? Which business sectors will be most susceptible to future changes and how?

These and many other questions appeared by European and not only companies and customs brokers after the European Commission presented a new VAT plan and step-by-step actions for its implementation.

A little background …
On May 7, 2019, a large-scale research project was announced, a project called GrandTheftEurope, launched by journalists from 30 countries, on fraud with a VAT carousel. The first part of GrandTheftEurope’s publications is mainly devoted to the history of VAT fraud and the possible reasons why fraud seems to have gone unchecked for a quarter century. During the investigation, it turned out that at least 50 million euros of unpaid VAT on intra-European transactions will never get into the European treasury.

VAT carousel fraud is possible due to deficiencies inherent in the VAT system introduced in 1993. To date, there was not enough political will to radically change the system. An ambitious VAT action plan – Towards a single EU VAT area, the European Commission is discussing in detail.

Despite the skepticism of some experts and the disagreement of representatives of individual EU countries with the effectiveness of the new system, a phased implementation plan is taking place. The final stage of the implementation of the system for commodity transactions is planned for 2022 and provides for the readiness of the legislative framework and information and computer systems for the exchange of data between the regulatory authorities of the EU member states. The second phase of the plan for transactions related to the provision of services is planned for 2027. If consensus is reached between EU countries (the question is when and whether it will be) and the new plan is still implemented, the impact on business will undoubtedly be great.

The Dutch secretary of state for finance, Menno Snell, is not quite positive about the new plan. In his opinion, the existing structure of organizations and methods to combat VAT fraud have brought many positive results. But the new system will on the contrary contribute to increased VAT fraud.

The collection of VAT on intra-European trade operations will be in the seller’s country at the tariff rate of the country where the buyer is registered. In other words, the seller charges the buyer VAT and transfers it to the local tax authorities. In turn, the local tax is obliged to transfer the withdrawn VAT to the tax authorities of the country of the buyer or end consumer.

One tool in the new system is a system called Transaction Network Analysis (TNA). A new tool, “helping EU countries crack down on criminals and recover billions.” The system will need to help Member States instantly exchange data and collectively process data. It also allows you to quickly identify fraud.

At the transitional stage, the role of “trusted taxpayers” is envisaged – the equivalent of authorized economic operators in customs. These certified taxpayers retain the ability to shift VAT.

By 2022, a single European VAT portal, the so-called “One Stop Shop – OSS”, is foreseen. By registering in the portal, European companies as well as companies outside the EU that are related to intra-European transactions will be able to register transactions online. Also, European companies that do not have VAT registration in the country where VAT is to be paid will be able to file a VAT declaration in their country. And local tax authorities are required to transfer VAT to the tax authorities of the country of the buyer (consumer). By 2027, an identical portal is planned to be introduced to register transactions related to the provision of services. And perhaps the status of a certified taxpayer, being a temporary tool, will no longer take place. In this case, there will be no opportunity to “shift the VAT.”

According to many skeptical experts, the system will not be functional. Indeed, practice shows that Member States are reluctant to enter all the necessary data into the common system. And also, given the history and recent European crisis, it seems politically unattainable for the EU countries to collect and transfer VAT to each other. There is too little trust between Member States to collect VAT. Indeed, in this way, an important part of national income is freed. But what if a country refuses to transfer VAT to another country? Professor Lamensch notes in this context that wars for less began.

Various experts, according to the research team, seem to agree that such a plan is politically impossible.

Hard Brexit and Logistics Implications

Brexit was delayed until October 31. The likelihood that Boris Johnson will reach an agreement on leaving the EU before this time seems almost impossible. The tough Brexit is approaching and the United Kingdom (Great Britain) will leave the EU without agreements with Brussels. Thus, the UK becomes the third country. This has far-reaching consequences, in particular in the areas of customs, excise taxes, VAT and logistics.
In accordance with the agreement, after October 31, there will be a transitional period until December 31, 2020, which can also be extended if necessary.

During this period, the EU and the UK may agree on future trade relations. Until then, the UK will remain in customs union with the EU, and therefore the free movement of people and goods will continue. Thus, the negative consequences of Brexit may remain limited, of course, if eventually a free trade agreement is reached.

The recently appointed government, led by Prime Minister Boris Johnson, has explicitly opposed the agreement in principle. The biggest stumbling block is the “backstop” supplement, which many British politicians hate and which is part of the agreement.

“Backstop” ensures that the border between Ireland and Northern Ireland remains open, in which case the UK practically remains part of the EU. It was this step backwards that met fierce opposition from many British politicians. The British are afraid of being held hostage by the EU. Moreover, in this case, the UK cannot conclude its own trade agreements with other countries if it is in a customs union with the EU. And this is exactly what the British government craves. There are already rumors of a favorable trade agreement between the UK and the US that will partially pull the EU out of the game.

Boris Johnson said the UK would leave the EU anyway as of October 31, “a deal or not a deal!”
The tough Brexit has far-reaching consequences in terms of customs, logistics and taxation. Without agreements in the field of joint trade with the EU and without a transition period, the UK becomes a third country, and customs duties are governed by the rules established by the World Trade Organization (WTO) in accordance with the so-called principle of “most favored nations”. This leads to a significant cost item.

Of course, the customs consequences are also applicable in the opposite situation, that is, when exporting to the UK. This will greatly affect the Dutch agricultural and oil sector in particular, as the UK is one of the largest exporters in these areas. Germany will lose one of the largest exporters in the automotive and pharmaceutical sectors.

Despite changes in the logistics infrastructure in anticipation of Brexit, neither Europe nor the United Kingdom is 100% ready for a break. In our opinion, Brexit is a step backward in the field of simplification and automation of logistics processes. In fact, it will cross out everything that can contribute to the development of the economy in an ever-changing world. It will lead to large delays in supply chains and, consequently, financial costs. Information technologies in the field of customs processes require urgent improvement since the existing system is not able to process the amount of data on customs cargo that is expected after Brexit. And also the lack of trained customs personnel can lead to additional costs both for the UK and for neighboring states. If you look at France, an English-speaking worker is in itself a valuable shot even without the necessary professional skills in customs.

Additional customs formalities and documents, training of transport and customs personnel, lack of personnel in state veterinary and phytosanitary authorities, changes in customs legislation in connection with dangerous goods and sanctions legislation, additional border controls and delays, all this negatively affect the logistics processes in almost all business areas.

The cooperation of enterprises with professional and competent customs brokers, companies that can offer a wide range of logistics services for the transport, handling and storage of transit goods is the cornerstone especially in the early stages of Brexit. In our opinion, only flexibility, mutual understanding and professionalism will help minimize financial costs for companies in almost all business areas, especially in this situation.

AB COM, as a customs broker, customs representative, transport company and warehousekeeper in the port of Rotterdam, will help companies in all areas of business to make the transition to Brexit the most comfortable.

Ukrainian carriers are stacked due to limited quantity of Polish permits

Unexpected issue or careless behaviour of Ukrainian authorities ?

Queues at the borderlines and delays with deliveries. Delays and high penalties for Ukranian transport companies and increasing transport rates for clients. Growing of corruption and lack of decisions by the authorities. That are only a few problems that Ukrainian transport companies and logistics business facing at this moment.

Why?”- is a common question at this moment concerning situation we hearing from different sides:

  • why transportation rates increased so sharply?
  • why at the borderlines not possible to get licenses?
  • why the Ukrainian government was aware of the issue from the end of 2018. But they did not take any steps to find the solution?
  • why transport companies and other businesses have to be hostages to government irresponsibility?

At the end of the 2018 Ukrainian Ministry of Infrastructure and transport together with the transport authorities could not agree with the Polish authorities about a certain quantity of Polish – Ukrainian transport licenses for international transportation. The reason why it happens is decreasing of transportation rates due to low rates offering by Ukranian trackers for the same transportroutes. The reaction of the Polish authorities is quite understandable. Defending of their own trackers!

The question is what the Ukrainian authorities are going to do to solve this problem. Are they going to do something or just stay ignorant to this situation? A few weeks ago they just stopped giving the permits at the border lines! Because they noticed that all permits will be used till September 2019 and from that period there would not be any permits to give.

Growing of corruption.

ccording to the information of logistics media sources and interviews with the drivers they have to pay the extra money (of course without a receipt) to get any further in the line to get permits.

According to preliminary information of The State Bureau of Investigation of Ukraine, officials of the Ukrtrans Security Department in the Lviv region had set up a corruption scheme for the distribution of permits for international transportation. Using the scheme, they are:  

  • assisted economic entities in avoiding legal liability for violation of the requirements of the Transport Law of Ukraine.
  • decided to penalised companies with penalties that are not related to violators.
  •  By their actions, officials created an artificial shortage of permits

Today recalls that, due to Poland’s categorical refusal to increase the number of permits for international road freight transport, on July 19, 2019, a meeting of the Commission was held to consider issues related to the design, issuance, accounting and analysis of the effectiveness of the use of travel permits in foreign territories States, during which additional temporary restrictions were adopted due to insufficient balance of permits. It was decided that to ensure transit to countries whose quotas are sufficient, a minimum of 27 thousand transit permits of the Republic of Poland are needed. So, 13.4 thousand universal permits were transferred to the remainder of 13.6 thousand transit permits, they will be valid only for transit through the territory of the Republic of Poland to Germany and the Czech Republic. Transit permits will be issued only for vehicles traveling in transit through the territory of Poland in the directions of Germany and the Czech Republic, which meet the environmental parameters of Euro-4 and above and with a gross weight of over 10 tons. Permits for transit travel will be issued at 7 TACs: Boryspil, Vinnitsa, Goloby, Kovel, Korosten, Lviv and Khmelnitsky. The balance of universal permits that are valid for bilateral transport is 10,469 pieces by the end of the year. These permits will be issued at 160 permits per day for 3 TACs: Boryspil, Kovel and Lviv.