The Certified Taxable Person

27th of June 2018

At the heart of the EU-plans to reform the EU VAT system - in respect of cross border trade - is the so called ‘Certified Taxable Person’ (CTP). It’s a new concept that applies to reliable taxable persons. The CTP status for instance allows taxable persons in the near future to purchase goods abroad without paying VAT. The CTP concept will be an elementary part of the definitive new VAT system as from 2022. CTP’s already can benefit from their status from certain simplifications as of 1 January 2019!

Quick fixes

The EU Commission proposed so called ‘quick fixes’ in preparation for the definitive new VAT system. From that date onwards, CTP’s benefit from simplified rules of the current VAT system with regard to chain transactions and simplifications for the proof of the exemption for intracommunity supplies. Call off stock simplifications are proposed to achieve a single intra-EU supply instead of two supplies. In that case the transaction must take place between two CTPs. This simplification prevents the need for a separate VAT registration in the Member State where the call off stock is located.

The new EU VAT system

The European Commission recently published details of its plan for reform of the EU VAT system in respect of cross border trade. One of the targets is to make it more difficult for fraudsters to operate. Another reason for amending the EU VAT system for cross border trade is the complexity of the current VAT system. This leads to additional costs for businesses involved.

The current VAT system works as follows. If in relation to a supply goods are transported from one Member State to an other and the customer is a taxable person, the supply is exempt (or zero rated). This is the so called intra-community supply. The customer needs to report an intra-community acquisition in the Member State of arrival. This VAT system however has a big downside because it is very susceptible to VAT fraud.

Under the proposed definitive new VAT system supplies of goods between entrepreneurs (B2B) will be subject to VAT in the Member State of arrival of the goods. There will be only one single supply to be reported. There will be an end to the system of intra-community supplies and intra-community acquisitions. In this new concept very important is the use of the One Stop Shop System (OSS). The OSS will cover cross-border B2B supplies of goods when the supplier is not established in the Member State of arrival and where the VAT needs to be paid. The OSS makes it possible that a taxable person can file in his own Member State the VAT-return for the VAT to be paid in the other Member State.

An alternative route to meet VAT requirements in these cross-border B2B supplies is to benefit from the CTP-status of the customer. Supplies to CTP’s will be reverse charged to those CTP’s. This CTP-route may provide a cash flow benefit for the customer. It also prevents the supplier from having to file – in his own Member State (OSS) - a foreign VAT return with all the complications this entails. For suppliers it might therefore be interesting in cross-border-situations to deal with CTP’s.

How to obtain a CTP status?

Taxable persons can apply with their own Member State for the CTP status.
As a reliable taxable person you must comply with all kinds of conditions. For instance:

• you need to have your head office or fixed establishment in the EU;
• as a taxable person you are involved in intra-Community trade;
• there is an absence of any serious infringement or repeated infringements of taxation rules and customs legislation;
• and important: you must demonstrate a high level of control of your operations, the flow of goods and transport records;
• your (audit) system must allow appropriate tax controls;
• you’re able to give evidence of financial solvency.

The above is just a brief description of the conditions and is not necessarily complete.

A few conclusions

The advantage of the CTP status is that you are eligible for a number of simplifications of the current VAT system. These ‘quick fixes’ already apply from 2019. As of 2022 the CTP status is important if you want to purchase goods without VAT in cross-border supplies. In that case the customer must be the CTP and can therefore profit from a cash flow advantage.

Next steps

The proposals of the EU commission for the quick fixes and the CTP concept must be forwarded to the Council of Ministers for agreement. Unanimous agreement is required. The latest news on that point is that during the ECOFIN Council meeting on 22 June 2018, the Member States were unable to reach agreement on the introduction of the 'quick fixes'. Which is not exactly a good sign.

We expect to be able to tell you more in the coming months. Meanwhile we recommand you already to start assessing this impact of the proposals of the EU commission and the CTP concept. Please contact us if you have any question about this subject.