Background
It is recommendable to identify your sellers and customers to ensure that you are not involved in VAT fraud. This is important if you are involved in sectors of high risk of (carousel) VAT fraud, such as trade in emission rights or electronics. However, the recent case law shows that knowing your trading partners is required, even if no fraud is suspected.
Identify your customer to apply an exemption
The ECJ decided that the exemption from VAT of a seller having delivered goods to another Member State (MS), must be refused, if that seller has not shown that the goods were supplied to a recipient, who has the status of a taxable person in that MS. The ECJ previously ruled that a VAT payer is not entitled to deduct input VAT, if it cannot prove that the supplier is a taxable person.
The ECJ ruled that the VAT payer was not entitled to exemption or input VAT deduction, if it was not clear who the actual supplier or purchaser of the goods or services concerned was. The VAT exemption or deduction must be denied, because the data required to identify the actual supplier or customer was missing. The ECJ ruled that refusing the VAT exemption, or input VAT deduction, was justified, because tax authorities could not check whether the VAT had been paid by the supplier or purchaser of the goods or services.
Dutch case law
A seller should know its buyer to reverse the VAT obligation to him
The Dutch Supreme Court has held that the VAT reverse charge can only be applied if the tax authorities are able to determine the actual identity of the customer to whom liability for paying VAT is shifted.
Although, from the quantity and nature of the goods, it was concluded that goods have been used for businesses activities not for private purposes, the court found the reverse charge did not apply because it was not known who the buyer of the goods was. Therefore, the supplier was liable for VAT in respect of the supply.
The court stated that information about the customer's identity is necessary for the tax authorities to be able to properly administer and control the levying of VAT from the customer.
Consequences for the practice
The judgments above show that it may be important to identify your sellers or customers to claim a VAT refund or to apply a VAT exemption. Therefore, it is advisable to always check the identity of your sellers/customers and keep the proof of these checks in your files for possible audits by the tax authorities.
The decisions state that a VAT deduction may be denied, if the data required to identify the actual supplier is missing. Furthermore, if the customer’s identity remains unknown, the exemption or the reverse charge cannot be applied, and the seller is required to remit payable VAT because the tax authorities are not able to check whether the VAT has been paid by the buyer.
From January 1st, 2020, obtaining a VAT number of a business customer in another MS became mandatory for claiming VAT exemption for intra-EU supplies of goods. This means that in addition to meeting all other requirements for the VAT exemption, such as obtaining proof of transport, the VAT number of your customer in another MS is always required.
Furthermore, even in situations where a seller may not be legally required to have the VAT number of its customer, obtaining a valid VAT number may be recommendable for possible checks by the tax authorities. This is important when the reverse charge applies and your customer becomes liable to pay VAT (e.g., in case local sales of so-called fraud sensitive goods for which the reverse charge applies).
In addition, when a new supplier charges you VAT, it is recommendable to check the identity and a VAT number of the seller to ensure that you have the right to deduct input VAT on your purchases.
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