Slovakia’s stricter supplies rules

April 15, 2013

Proof requirements for intra-Community trade are stiffening up in Slovakia.

The Slovak Parliament has approved an Amendment to the Slovak VAT Act, which became legally effective on 1 October 2012. Besides other anti-avoidance rules, considerable changes to the documentary proof required to support VAT exemption for intra-Community supplies of goods were introduced.

These changes will affect all businesses that make cross-border sales of goods from the Slovak Republic to another EU country. According to the new rules, if the transport of goods is arranged by a third party, the supplier has to have a transport document combined manifest report signed by the customer or its representatives confirming receipt of the goods.

Obtaining this document could be an issue for many businesses, for a number of reasons, e.g. freight forwarders who are not ready to cooperate, customers who have not had physical receipt of the goods or customers not willing to confirm in their receipt in writing. More strict rules apply when the transport of goods is arranged by the supplier or customer directly.

The supplier must have documentation confirming acquisition of the goods by the customer, which has to include the following information:

  • The identification of the customer (name, seat and place of business, etc.)
  • A description of the supplied goods
  • The amount of the goods
  • The place and date when the goods were taken over by the customer (if transport is performed by the supplier)
  • The place and date when transport was finished (if transport is performed by the customer)
  • The name and surname of the driver performing transport and his signature and his registration
  • The number of the vehicle that was involved in transport

Conclusions

The requirements for proof for intra-Community supplies under the new rules are much stricter than applied previously. Taxpayers should review their current documentation practices and assess whether they comply with the new rules, as a matter of priority.

If the correct documentation is not received, the supply may become liable to Slovak VAT as a domestic sale at the appropriate rate (currently 20% or 10%), resulting in additional costs and potentially interest and penalties.

Suppliers may find it hard to add the VAT to agreed contract prices with EU customers who will apply reverse charge VAT on the intra-Community acquisition, so accounting for VAT will reduce the supplier’s profit margin.

If the purchaser does agree to pay an additional VAT, it may not be able to recover the tax from the Slovak authorities as input tax. The Slovak tax administration’s strict position could potentially be challenged under Community law and in the light of the European Court of Justice (CJEU) cases.

Arguably, according to EU legal principles, exemption should be granted in all cases if it is certain that the goods have arrived in another member state, even if the documentation does not comply with the rules set out by the tax administration. However, taxpayers should not rely on this defense.

Finally, multinational businesses should be aware that the Slovak Republic is not the only EU member state that is tightening its documentation requirements to support the treatment of intra- Community supplies as VAT exempt.

Taxpayers who operate in several member states may want to look at their processes and documentation policies across the EU as a whole to improve efficiency and reduce potential risks.

The full version of this article was first published in the Ernst & Young Indirect Tax Briefing, Issue 6, December 2012 (pdf, 4.96 MB)

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