What is triangulation?
Triangulation is a term used in cases that involve the supply of the same goods between three different member states. Triangulation means a sale from a taxable person in Member State (MS) 1 to a taxable person in Member State (MS) 2, who sells these goods further to a taxable person in Member State (MS) 3. Goods are transported directly from Member State 1 to Member State 3.
In such cases the relation of the transport of the goods is essential to determine how the VAT should be applied to the transaction. There are two possibilities:
1. The transport of the goods is done or contracted by C or by B as the seller to C.
- In this case A will make an Intra-community supply (ICS) to B in MS1.
- B will make a zero rated ICS to C in MS1 since the goods are placed at the disposal of B in MS1 this time.
- C will make a taxable ICA in MS3 and will reverse charge.
- B will have to register for VAT in MS1.
Since this time C is taking care of the transport, it means that the goods were made available to C in MS1 and that is where the ICS to C took place.
In such a case there is a supply without transport by A to B which is considered as a domestic supply by A in Member State 1. Therefore A has to charge VAT to B. On the other hand the supply by B to C is a supply with transport in Member State 1 and is exempt from VAT if it satisfies two conditions, namely that C has a valid identification number and that goods are transported out of Member State 1. C is then making an Intra-Community Acquisition in Member State 3 for which he is liable to pay VAT. In this situation B is always required to register in Member State 1.
2. The transport of the goods is done or contracted by A or by B
The supply between A and B is a supply with transport . It is therefore an Intra-Community Supply that satisfies two conditions namely that B has a valid identification number in Member State 2 and the goods are transported outside Member State 1. Such an Intra-Community Supply is therefore exempt in Member State1.
The supply by B to C is a supply without transport . However B is not registered in Member State 3. Strictly speaking in a normal situation, B would have to register in Member State 3. To avoid such registration simplification procedures may apply in such a situation. These procedures apply if C is a taxable person and the liability to pay VAT is shifted by B to C in Member State 3. If C is a not a taxable person, then B has to register in Member State 3 and charge the VAT of Member State 3. Under such simplification procedures, A issues an invoice to B without charging VAT and quoting Bs VAT identification number - A should report this supply on its Recapitulative Statement as an Intra-Community Supply. B issues an invoice to C without charging VAT endorsing it with the words “ VAT Simplification Invoice ” - B should report the supply to C on its Recapitulative Statement quoting C ’ s identification number and the code (T) to denote a triangulation operation. C should account for the purchase from B in his VAT return by the Reverse Charge Rule.
In such cases Simplification Procedure is only applicable if transport is made in the relation between A and B.
See also full article about triangulation