Triangulation: Trading across the EU with only one VAT registration

Fortunately, the EU VAT system offers a solution: the triangulation simplification. 
A triangulation transaction involves three parties (or more). A supplier sells goods to an intermediary trader, who resells the goods to a final customer. The goods are shipped directly from the supplier to the customer.

Without a simplification, the intermediary would often need to register for VAT in the EU member state where the transport ends. Under the triangulation rules, however, the intra-community acquisition in the country of destination is VAT exempt, and the VAT liability for the local supply can be transferred to the final customer through the reverse charge mechanism. A VAT registration can therefore be avoided.

To benefit from the simplification, all parties must use VAT IDs issued by different countries and the transport must be carried out or arranged by either the supplier or the intermediary trader. Furthermore, the intermediary must correctly report the triangulation transaction in its European Commission Sales List (ESL), and issue an invoice to the final customer referring both to the triangulation simplification and the reverse charge.

A practical solution for non-EU traders

The strategic value of this simplification is often underestimated. A non-EU company can obtain a VAT registration in a single EU member state and use this VAT ID as the intermediary trader in triangulation transactions throughout the EU.

Consider the following example: A US company receives an order from a business customer in France. To fill the order, it purchases the goods from a supplier in Germany. The goods are shipped directly from Germany to the French customer. If the US company has an Austrian VAT ID and fulfils all requirements for triangulation, the French customer accounts for the VAT under the reverse charge mechanism, and the US company can generally avoid a French VAT registration.

The choice of the registration jurisdiction is an important consideration. Austria is often an attractive option because the VAT registration process for foreign businesses is generally straightforward and predictable. In addition, ongoing compliance and advisory costs are often lower than in other EU countries. Important: At least one taxable transaction should generally be carried out in Austria each year to avoid the risk of the Austrian VAT ID being cancelled.

In conclusion 

The triangulation simplification is more than a technical VAT rule. When combined with a strategically chosen EU VAT registration, it becomes a powerful tool for non-EU businesses seeking access to the European market. For international tax advisers, this makes triangulation an effective and practical advisory solution for globally active clients.

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Edith Huber-Wurzinger is an Austrian certified tax consultant, focused on indirect taxes and international taxation. She is a member of the VAT Working Group of the Expert Committee for Tax Law of the Austrian Chamber of Tax Advisors and Auditors, and a specialist author and lecturer.