Do you validate your customers’ VAT identification numbers?

13 February 2020

"Quick Fixes" to the EU level VAT rules have impacted VAT reporting obligations and clarified evidence requirements for the taxpayers. Earlier we addressed the treatment of call-off stock. “Quick Fixes” have also made VAT identification number a mandatory requirement to apply the zero VAT rate to intra-EU supplies of goods.

Why does a valid VAT identification number matter?

As  “Quick Fixes” entered into force on 1 January 2020, VAT identification number of the customer, allocated by a Member State other than that in which transport of the goods began, has become an additional substantive condition to apply the zero-rating in respect of an intra-community supply of goods. Failure to provide a correct VAT number on sales documents may make seller ineligible to zero VAT rate. Local VAT may also be charged.

It is possible to check the validity of VAT numbers through European Commission VIES VAT number validation portal. To satisfy zero VAT rate requirements, it is important to perform such checks on a continuous basis, keep record of performed checks and duly perform follow-up actions if certain VAT numbers turn out to be invalid. 

How to ensure that your ERP complies with VAT validation obligations?

To ensure that you are compliant with the new requirement, Finance and IT teams should cooperate to take several actions:

• Review standard operating procedures on customer master data creation and maintenance in ERP.

• Analyse how customers with multiple VAT registration in the EU are maintained in your ERP customer master data.

• Review how your order management team can capture exceptional cases of VAT identification number invalidity when processing sales orders.

• Identify how alerts on invalid or missing VAT identification numbers are handled and what control points (e.g.  delivery blocking) are enabled in such cases.

• Review how audit trail of customer VAT number validation is maintained to be able to prove to tax authorities that validation checks have been duly performed.

We are ready to assist you with assessing tax compliance of new configurations, reviewing guidelines and training users, as well as implementing robotic process automation in VIES VAT validation.

By Jari Kärkkäinen and Alexandra Shtromberg