Triangular Trade

Triangulation is the term used to describe a chain of supplies of goods involving three parties – selling party (the company owing the customer order), delivering party and receiving party – in two or three EU member states. The goods are delivered directly to the last party in the chain, instead of physically passing from one party to the next. A fiscal representative can be involved for each one of these parties.

In a scenario where only two EU member states are involved, the intermediate supplier (the party owing the original customer order based on the external customer's order) would in normal circumstances be required to register for VAT in the country where the goods are delivered and declare VAT there on their supply. To avoid imposing this burden on intermediate suppliers (sellers), all European Union countries have agreed on a simplified procedure. This simplified triangulation means that if goods are purchased from a company in one EU member state and sold via an intermediate supplier to a company in another EU member state, the latter company can zero-rate the goods. All parties involved must be registered for VAT.

Triangular trade scenarios

A triangular trade scenario can occur in sales to external customers and in sales involving two divisions of the same company:

Case

Base country

From/To country

Third-party country

1

EU member state A

EU member state C

EU member state B

2

EU member state A

EU member state B

EU member state A

3

EU member state A

EU member state B

EU member state B

4

EU member state A

EU member state A

EU member state B

5

EU member state A

Non - EU member state C

EU member state B

6

EU member state A

EU member state A

Non - EU member state B

7

EU member state A

EU member state C

Non - EU member state B

8

Non - EU member state A

EU member state B

EU member state B

9

Non - EU member state A

EU member state C

EU member state B

10

EU member state A

Non - EU member state C

EU member state A

11

Non - EU member state A

Non - EU member state C

Non - EU member state B

12

Non - EU member state A

Non - EU member state B

Non - EU member state A

13

Non - EU member state A

Non - EU member state B

Non - EU member state B

14

Non - EU member state A

Non - EU member state A

Non - EU member state B

15

Non - EU member state A

EU member state C

Non - EU member state B

16

Non - EU member state A

Non - EU member state A

EU member state B

17

Non - EU member state A

Non - EU member state C

EU member state B

18

EU member state A

Non - EU member state B

Non - EU member state B

19

EU member state A

Non - EU member state C

Non - EU member state B

20

Non - EU member state A

EU member state C

Non - EU member state A

Countries involved

M3 Business Engine identifies a triangular trade scenario in its VAT decision based on the countries of these three parties:

The customer's country itself is irrelevant in the VAT decision. The identification of the base country and the From/To country differs depending on whether the sale is external or company-internal.

The third party in the triangular trade is:

Sale to external customer using external supplier

From the perspective of the intermediate, selling party, the base country on the original customer order and the customer invoice is the country of the selling facility (United Kingdom). The From/To country is the country of the customer's delivery address (France). The third-party country is the country of the external supplier delivering the goods (Sweden).

From the perspective of the external supplier, the base country is the country of the fictive receiving warehouse on the purchase order (United Kingdom). The From/To country is the country of the delivering supplier (Sweden). The third-party country is the country of the customer delivery address on the customer order that is linked to the purchase order (France).

Sale to external customer using internal supplier

The base country on the original customer order and the customer invoice is the country of the selling facility (United Kingdom). The From/To country is the country of the customer's delivery address (France). The third-party country is the country of the delivering warehouse (Sweden). The internal (MUC) customer invoice is sent from the delivering warehouse to the selling facility. The internal (MUC) supplier invoice is sent from the selling facility to the delivering warehouse.

Limitations

Standard M3 Business Engine does not manage VAT in triangular trade in these constellations: