Chain transaction in third countries - VAT settlement
The concept of a chain transaction is most often associated with the system of goods delivery within the territory of the EU. However, it should be borne in mind that there are possible situations in which the chain transaction takes place entirely outside the EU, but an entity from Poland is involved in it. Therefore, it is worth considering how this type of case should be settled in the field of VAT.
The essence of a chain transaction
First, it is necessary to clarify how the concept of a chain transaction is interpreted in the context of VAT.
In the described case it is a special type of delivery of goods described in Art. 7 sec. 8 of the VAT Act. In this provision, we can read that if several entities deliver the same goods in such a way that the first of them delivers the goods directly to the last buyer in the order, it is considered that the goods were delivered by each of the entities participating in these activities. Consequently, a legal fiction is assumed that each entity in the chain has supplied the goods and the place of taxation must be determined for each supply.
For example, we will deal with a chain transaction when a taxpayer from Poland buys goods from China and sells them to a contractor from the USA, and the goods are directly transported from China to the USA. Although it actually moves only between the first and last country, it is necessary to determine the place of taxation of the sale of goods by the Chinese entity for the Polish taxpayer and the place of taxation of the sale of goods by the Polish taxpayer for the American company.
On the basis of VAT, a chain transaction is based on a legal fiction that requires the determination of the place of delivery for each sale and purchase transaction.
Export of goods as part of chain transactions
The territorial nature of the tax on goods and services means that only those activities that are considered to be performed in the territory of the country are subject to taxation. In this case, the place of delivery determines the place of taxation. At the same time, the place of performance indicates the country where the given activity should be taxed.
Determining the place of performance is particularly important in the case of delivery of goods that takes place between entities from different countries. The place of supply (taxation) upon the delivery of the goods depends on the manner in which the delivery is made.
First, let's explain that in the case described, there is no export of goods on the part of the Polish taxpayer. Let us recall that according to the definition of export contained in Art. 2 point 8 of the VAT Act, export is understood as the delivery of goods dispatched or transported from the territory of the country outside the territory of the European Union by:
supplier or on his behalf, or
a buyer established outside the territory of the country or on its behalf, with the exception of goods exported by the buyer himself for the purpose of equipping or supplying recreational craft and tourist aircraft or other means of transport for private purposes
- if the export of goods outside the territory of the European Union is confirmed by the competent customs authority specified in the customs regulations.
As a result, for us to be able to talk about the export of goods, it is necessary that the goods leave the territory of Poland and such export has been confirmed by the competent customs authorities. On the other hand, if the goods are not physically transferred to the territory of the Republic of Poland as part of the chain transaction, then we cannot talk about the export of goods.
In the case of a chain transaction carried out in third countries, where the goods are not transferred to the territory of the EU, there is no Polish taxpayer participating in the procedure for the export of goods.
Chain transaction and determination of the place of taxation
Then move on to the specific rules governing the place of taxation.
In this regard, first of all, attention should be paid to the content of Art. 22 sec. 1 point 1 of the VAT Act, which states that the place of delivery of goods is, in the case of goods shipped or transported by the person delivering them, their buyer or by a third party - the place where the goods are at the time of commencement of shipment or transport to the buyer.
Art. 22 sec. 4 of the Act, indicating that if the place of commencement of shipment or transport of goods is the territory of a third country, the supply of goods made by a taxpayer or a taxpayer of value added tax, who is also a taxpayer for import or import of these goods, is considered to be made in the territory of the Member State of importation or importation of these goods.
In view of the above, pre-import chain deliveries are taxed in the country where the transport of these goods begins. We apply the general rule resulting from Art. 22 sec. 1 of the VAT Act.
Remember that when the place of commencement of shipment is the territory of a third country, only the delivery made by the taxpayer who is also the taxpayer on account of importation is considered to be made in the territory of the country. In connection with the above, all deliveries prior to import should be treated as made outside the territory of Poland.
As we have already indicated, in the case at hand, the goods are transported directly from China to the USA. Consequently, the place of import will be the territory of the USA. This means that the sale of goods made before import, i.e. from a Chinese entity to a Polish taxpayer, will be taxed in the country of commencement of shipment (pursuant to Article 22 (1) (1) of the VAT Act), i.e. in China.
The above means that this transaction is not taxable in Poland, but in China.
Now let's move on to determining the place of taxation of the second part of the transaction, i.e. the supply between the Polish and American counterparty.
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In this respect, it should be noted that we are dealing with the sale of goods purchased in the territory of a third country to a recipient established in another third country. As a result, the taxpayer from Poland does not import goods into the country. In this case, there is no import of the goods referred to in Art. 2 point 7 of the Act, i.e. the import of goods from the territory of a third country to the territory of the European Union, and even less the intra-Community acquisition of goods. The Polish entrepreneur is not a taxpayer on this account in the territory of the country.
This therefore means that the place of taxation will be the country of importation of the goods, which in this case is the territory of the USA. As a consequence, the transaction of sale of goods between a taxpayer from Poland and a contractor from the USA will be subject to taxation in the USA, not in Poland.
The Polish taxpayer buys goods from China and sells them to the US taxpayer. The goods are shipped directly from China to the USA, therefore the country of importation is the USA. In such a situation, we are dealing with a chain transaction, in which we can specify a delivery between a Chinese seller and a Polish buyer, and a delivery between a Polish seller and an American buyer. In the described case, none of these transactions is taxable in Poland.
Similar conclusions were drawn by the Director of KIS in the interpretation of April 3, 2018 (No. 0114-KDIP1-2.4012.42.2018.2.KT), which also considered the case of a chain transaction performed entirely in third countries.
The analyzed provisions show that a chain transaction involving a Polish VAT payer, but made entirely in the territories of third countries, is not subject to Polish VAT. The place of taxation of individual supplies are the territories of third countries.
The issue of VAT settlement in the case of chain transactions in third countries is interesting because the regulations are slightly different than in the case of chain transactions made in the EU. Taxpayers who want to correctly determine the place of VAT taxation must take into account the place where the shipment of goods begins and where they are imported.