Understanding the New EU VAT Rules for Call-Off Stock

As part of its VAT overhaul, the European Union (EU) has adopted rules for an increasingly popular procurement strategy. What does it mean for your business?

So, what is call-off stock?

Here’s an example of how call-off stock works. Let’s say your company is a regular customer of a manufacturer that’s based in a different EU member state. You have a warehouse that belongs to you (or is situated close to your facility) where the manufacturer stores inventory. The manufacturer retains ownership of the goods. When you need the supplies, you just call the warehouse and pick them up. At that point, ownership of the goods passes to your company, and the manufacturer bills you.

Why arrange call-off stock?

Call-off stock contracts offer significant business benefits – for example, they reduce buyers’ risk of loss and ensure swift access to supplies when needed. But the EU’s VAT system didn’t cover these arrangements until December 2018, when the EU adopted new rules as part of its “quick fix” package, set to take effect in January next year. Aleksandra Bal, senior product manager and VAT expert at Vertex, unpacks and evaluates the new rules in a Tax Notes International article, “EU VAT and Procurement: New Rules for Call-Off Stock Contracts.”

Some EU member states have passed their own call-off stock rules to eliminate any VAT registration requirement for nonresident suppliers in the customer’s state, Aleksandra notes. The new community-wide rules are intended to do the same, but only under specific conditions. For example, the goods must be supplied in accordance with an existing agreement with the customer, and the supplier must have no “fixed establishment” in the customer’s country.

VAT Requirements to Consider

Aleksandra looks at the VAT requirements and reporting obligations in detail. The transfer of goods under a call-off arrangement from one country to another will not be a taxable transaction. However, when the customer removes the stock from the inventory, two taxable transactions will be triggered: one in the supplier’s state and one in the customer’s. Both the supplier and the customer will be required to keep a register of the goods, and the supplier must record the customer’s identity and VAT number.

Andrew Hallsworth, a Vertex Solution Specialist, covers this and more in our free webcast, “Real-Time VAT Validation on Invoices in SAP Ariba,” available to watch now.