Briefing Document & Podcast: VAT concepts ”Chain Transactions” & ”Triangulation” explained based on ECJ cases

Refresher: Chain Transactions vs. Triangulation (Key Concepts)

• Chain Transaction (ABC transaction) – In EU VAT, a “chain” or “ABC” transaction refers to a series of at least three parties (A, B, C) engaging in successive sales of the same goods, with those goods being delivered directly from the first party (A) to the last party in the chain (C). Despite multiple invoices (A→B and B→C), there is only one physical movement of the goods (A to C). The VAT challenge is determining which one of these two supplies is treated as the cross-border movement (intra-Community supply, or ICS, which is zero-rated for VAT), and which supply is a domestic transaction with VAT. Only one link can have the exempt intra-Community transport; the other(s) will be taxed either in the origin or destination country. Prior to 2020, this determination was based on case-law criteria (who arranges transport, when title passes, etc.). Since 2020, Article 36a of the VAT Directive provides a harmonized rule (explained below). [bdo.global] [vatupdate.com]
• Triangulation (Simplified ABC Scheme) – “Triangulation” is a special simplification for a three-party chain (A→B→C) in three different Member States, aimed at avoiding double taxation and extra VAT registrations. Under normal rules, suppose A (in country X) sells to B (in country Y) and B sells to C (in country Z), with one transport from X to Z. If A→B is treated as the intra-EU supply (zero-rated in X), then B is making an acquisition in Z (liable for VAT in Z) and a local sale to C in Z (charging Z’s VAT). B would have to register in Z to report that VAT. The triangulation simplification (under Articles 141 and 197) allows B to avoid registering in Z: instead, if certain conditions are met, B’s sale to C can be handled via reverse-charge to C. In practice, when triangulation is applied correctly: [bdo.global]
  • A’s sale to B is zero-rated as an intra-Community supply from X to Z.
  • B’s intra-Community acquisition in Z is exempt by virtue of Article 42/141 (no VAT due by B in Z).
  • B’s sale to C in Z is taxed under the reverse charge – C, as the final purchaser, self-accounts for the VAT in Z. In effect, both A and B get to avoid charging VAT, and C ends up paying VAT in Z as if C had imported the goods directly. Triangulation is optional and only applies if all conditions in Article 141 are met (see below). It’s essentially an EU-wide mechanism to streamline one internal cross-border chain transaction per goods movement. [bdo.global]

EU VAT Legal Framework – Key Provisions

• Article 36a – Allocation of Transport in Chain Transactions: (Added by the 2020 “Quick Fixes”). This article codifies how to assign the single cross-border transport to one link in an A-B-C chain:
  • 36a(1): By default, if B is an “intermediary operator” (i.e. not the first supplier and not the final customer) and B arranges the transport, then the intra-Community transport is attributed to A→B (the supply to the intermediary). That makes A→B the zero-rated intra-Community supply, and B→C a taxable local supply in C’s country (destination). If A arranges transport, clearly A→B has the transport; if C arranges it, then B→C has the transport – those simpler cases were already understood from case law. [bdo.global]
  • 36a(2): Exception – if intermediary B provides A with a VAT number issued by the Member State of dispatch (A’s country), then the transport is instead attributed to B→C. In that scenario, A→B is treated as a domestic sale in A’s country (since B used an A-country VAT ID) and B→C becomes the cross-border exempt supply. In short, B can “shift” the exemption to its sale by using the origin country VAT ID when buying from A. [bdo.global]
  • 36a(3)-(4): Define “intermediary operator” and exclude call-off stock situations from these rules.
  Practical effect: Article 36a enforces a uniform treatment across the EU. All transactions before the one with the transport are taxed in the Member State of origin, and all transactions after are taxed in the **Member State of destination】. This aligns with earlier ECJ rulings (like EMAG and Toridas) by ensuring only one zero-rated segment. It also resolved conflicts like Euro Tyre, where different countries took different views if B had used a “wrong” VAT ID. Now, the use of a VAT ID from A’s country is the clear trigger to attach the transport to B→C. Member States have implemented this, though as noted, Germany already had a similar approach pre-2020 and sees Article 36a as consistent with its old rules. [bdo.global] [kmlz.de]
• Article 138 – Intra-Community Supply Exemption: This is the foundation for zero-rating cross-border B2B sales of goods within the EU. It states that Member States shall exempt (i.e. not charge VAT on) a supply of goods which are dispatched or transported from one Member State to another, for a customer with a VAT number in another Member State. In practice, for a supplier (A) to apply this exemption, the conditions include obtaining the customer’s valid EU VAT ID and evidence that the goods left the country. (Since 2020, as a “quick fix,” Article 138 was tightened to require a valid VAT ID of the purchaser and a correct EC Sales List filing as formal conditions via Article 138(1a).) In chain transactions, which sale gets to invoke Article 138 is determined by Article 36a or, pre-2020, by case law. Only that one qualifying supply is “exempt” under Article 138; the others in the chain are not. [datenbank.nwb.de]
• Article 40 – Place of Intra-Community Acquisition (ICA): The default rule that an intra-Community acquisition of goods is taxed in the Member State where the transport ends (the destination country). For example, if goods move from France to Germany, the purchaser’s acquisition is in Germany. This ensures VAT ultimately falls where goods are consumed. In a chain, once it’s decided which transaction is the cross-border one, the purchaser in that transaction is the one making the ICA in the destination state. [kpmg.com]
• Article 41 – Fallback if ICA not taxed in Destination: This provision is essentially an anti-abuse or gap filler. It says if the purchaser (B) uses a VAT number from a Member State other than the destination, and if B doesn’t prove that the acquisition was taxed in the destination, then the acquisition can be deemed to have taken place in the Member State of the VAT number used. In simpler terms, if goods went to Germany but B gave a Polish VAT ID, Poland might claim the ICA occurred in Poland (to avoid non-taxation), unless B shows German VAT was accounted for. Article 41(2) allows a reduction if eventually German VAT is paid, to prevent double-taxation. This scenario can happen in chain transactions if parties mis-apply the rules (multiple countries might try to tax the same movement, or conversely a movement might slip through the cracks). [kpmg.com]
  Example: Pre-2020, if B mistakenly treated B→C as the exempt supply but tax authorities later decide A→B was the real exempt supply, then B might owe VAT in C’s country and also face Article 41 taxation in A’s country for the “untaxed” acquisition using the wrong VAT ID. The Kreuzmayr case is an example where mischaracterization led to such issues (A reissued an invoice with VAT once they discovered B had resold to C, etc.). Article 41 basically empowers tax authorities to secure VAT in the interim or in cases of mismatch.
• Article 42 – Relief from Article 41 for Triangulation: This says Article 41 will not apply if the conditions for triangulation are met. In other words, in a valid triangulation scenario, the intermediary’s acquisition is not taxed in the country of its VAT ID. Instead, the only VAT due is intended to be accounted for by the final customer under reverse charge. Article 42 requires that B (the intermediary) properly reports the triangulation on its EC Sales List (recapitulative statement) – that’s Article 42(b), and Article 42(a) essentially restates the scenario. If B fails to list the transaction, countries could try to invoke Article 41, but after Hans Bühler it’s clear that a late EC Sales List alone shouldn’t void the simplification (though penalties can apply for the omission). Thus, Article 42 is the mechanism ensuring that when triangulation is used, B’s intra-EU acquisition is exempt in the destination country (making the chain workable without double tax). [kpmg.com] [pwc.nl]
• Article 141 – Triangular Transaction Conditions: This provision enumerates the conditions under which the triangulation simplification applies:
  1. A sells to B, B sells to C – all three in different EU States.
  2. B is not established (no fixed address) in C’s Member State (the destination), and B is registered for VAT in another Member State. [vatupdate.com]
  3. The goods are transported directly from A’s country to C’s country (i.e. from a country different than where B is identified). [vatupdate.com]
  4. C is a taxable person (or identified for VAT) in the destination country. [vatupdate.com]
  5. Under the laws of C’s country, C is designated as the person liable for the VAT on B→C (per Article 197). [vatupdate.com]
  If all these criteria (a through e) are met, Article 141 instructs that the Member State of C shall not charge VAT on B’s acquisition. This sets the stage for the simplification: A can zero-rate to B, B doesn’t get taxed on the acquisition, and B charges C under reverse charge. Hans Bühler refined condition (a): even if B has a VAT registration in A’s country, B can still fulfill (a) as long as B also has another VAT ID and uses that for the acquisition (so B is “identified in another Member State”). The judgment made clear the directive’s objective – to avoid forcing VAT registration in C – and said having a registration in A shouldn’t by itself disqualify triangulation. This was a big clarification; some tax authorities (like Austria in that case) had argued B being VAT-registered in A meant triangulation couldn’t apply, but the CJEU disagreed. [pwc.nl]
• Article 197(1)(c) – Shift of Liability to Final Customer: Article 197 lists who is liable to pay VAT under certain reverse-charge scenarios. Point (c) specifically covers the triangulation: it provides that in a triangulation meeting Article 141 conditions, the person to whom the goods are supplied (C) is liable for the VAT in the destination Member State. Essentially, C must self-account for the VAT on B→C. To use this, the invoice from B to C must mention that C is liable (hence the need for “Reverse charge” wording) and typically reference the applicable simplification (the national law transposed from Art.141). If those formalities are met, C will report the purchase under reverse charge in their VAT return. This article is why failing to include the proper invoice phrase is so critical: without it, C isn’t formally made liable, so the simplification technically doesn’t apply and B remains on the hook. The Luxury Trust case underscored that Article 197’s requirements (via Article 226(11a) on the invoice) are to be taken literally – missing the phrase means the chain breaks down from a VAT perspective. [bdo.global]
• Article 226(11a) – Invoicing Requirement for Reverse Charge: Article 226 lists required information on invoices. Point 11a (added in 2010) says that when the customer is liable for the VAT (i.e. a reverse-charge situation), the invoice must contain the mention “Reverse charge” (or equivalent wording in the relevant language). In the context of triangulation, B’s invoice to C needs to include a reference that VAT is shifted to the recipient. Many countries also require wording like “Triangular transaction” or a citation of their national law, but the Directive-mandated part is the “reverse charge” indication. Non-compliance with this can invalidate the simplification as we saw in Luxury Trust. After that case, tax authorities Europe-wide are enforcing this strictly – for example, the Netherlands changed its rule to explicitly require this wording. Businesses now know that an accurate invoice is not just a paperwork issue but a substantive condition for VAT relief. [bdo.global] [vatupdate.com]

Recent Court Cases & Implications (Summary Table)

Member State Interpretations & Compliance Developments

• Germany’s Strict Stance (2023 BMF Letter): Germany historically was very strict (many principles of Article 36a were already in German law pre-2020). The Federal Ministry of Finance (BMF) letter of April 25, 2023 reinforces several points: [kmlz.de], [kmlz.de]
  • “Who arranges transport” = Who hires the carrier: Germany focuses on the contractual arrangement of transport. If two parties each organize different legs or aspects of transport, Germany will say there was no single continuous transport – effectively meaning you cannot apply the chain simplification neatly. This is more rigid than some other countries. For instance, if A and B each hire a carrier for different segments (perhaps a split delivery), Germany might tax both as separate domestic deliveries. Other states might still view it as one through-transport if evidence shows goods went from A to C without stop. The German view means businesses must be careful – if logistics are shared, the chain transaction treatment could be denied, causing unexpected VAT (the BMF explicitly warns of the risk of double taxation under Article 41 in such cases). [kmlz.de]
  • Active communication of VAT ID: Under Art.36a(2), B can choose which VAT ID to give to A. Germany insists B must proactively inform A of the specific VAT number at or before the time of the supply. It’s not enough that A finds a VAT ID on B’s letterhead or in VIES – there should be a clear message, e.g. “For this transaction, use my Polish VAT ID.” Ideally this is documented (the BMF suggests in the contract or order form). If B initially gave one VAT ID and later wants to change it, Germany won’t recognize that change after the fact. Some Member States are less strict if everything is consistent (implicitly allowing that the VAT ID on the invoice = the one used), but Germany wants an explicit communication. [kmlz.de]
  • No cure for mistakes: If B “communicates” the wrong VAT ID and the transaction gets mis-characterized, Germany does not allow retroactive correction. (E.g., if B should have used a VAT ID from A’s country but didn’t, you can’t later pretend you did – you’re stuck with the original treatment and any VAT due.) This again puts burden on businesses to get it right upfront. [kmlz.de]
  • Triangulation limited to last three parties: Germany maintains that in a longer chain (A→…→X→Y→Z with one transport to Z), only the final ABC part can use the Article 141 simplification. You couldn’t, for example, do triangulation on A→X→Y if Y then sells to Z in the same transport – at least not in Germany’s view. Most other Member States do not impose that limitation; they allow any qualifying three-party subset to simplify. The recent General Court decision (4-party case) confirms the EU law doesn’t limit it strictly to the last three. Germany may have to adjust this position, but until they do, a company in Germany acting as an intermediary not at the end of the chain might be forced to register abroad. [kmlz.de] [kpmg.com], [kpmg.com]
  • In summary, Germany prioritizes legal certainty and prevention of abuse over flexibility. German companies engaged in chains must meticulously document who is arranging transport and which VAT ID is used when. The upside is clear rules; the downside can be inflexibility in complex logistics. Businesses dealing cross-border often have to structure deals to satisfy the most stringent country (often Germany) to avoid troubles. [kmlz.de]
• Netherlands’ Adaptive Approach: The Netherlands generally takes a more business-friendly, pragmatic approach (within the bounds of the Directive). Notable points:
  • Triangulation Invoice Wording: Prior to 2022, Dutch tax authorities didn’t strictly enforce the “reverse charge” label on triangulation invoices – an invoice might just say “VAT 0% – intra-Community transaction, Article 138, triangular.” After Luxury Trust, they are aligning with the strict requirement. In fact, the Dutch State Secretary of Finance issued a decree effective Sept 1, 2023 mandating that invoices under the triangulation simplification must state “VAT reverse charged” (in Dutch, “btw verlegd”). This change removes any ambiguity: Dutch businesses now know omission of that phrase is a fatal error. They also updated guidance that simply stating “IC delivery” is no longer enough. This shows how case law directly drives national rules changes in real time. [vatupdate.com]
  • Use of foreign VAT IDs: The Netherlands had long accepted the idea confirmed in Hans Bühler – i.e., B can have a NL VAT number and still triangulate using, say, a German VAT ID if B isn’t established in the destination. Dutch practice already allowed that, so Hans Bühler mostly caused other countries (like Austria, Italy, etc.) to relax their stance to match what NL (and e.g. Germany) already permitted. Dutch guidance on international trade often cited that possessing a VAT ID in a country doesn’t automatically mean you’re “established” there for VAT – which aligns with the court’s view. [pwc.nl]
  • Documentation & EU List: Dutch tax authorities emphasize proper documentation (as do all): having C’s VAT ID, transport proofs, and filing the EU Sales Listing (EC Listing) correctly. However, if a Dutch business accidentally misses ticking the “triangulation” box on the EC Listing, Dutch authorities historically might allow correction without denying the exemption (consistent with Hans Bühler’s outcome) – though penalties for late corrections can apply.
  • General flexibility: The Dutch often issue guidance in easy-to-understand language (for example, the concept of “ABC transaction” is commonly explained on the tax authority’s website with examples). They aim to facilitate compliance. After Luxury Trust, the Dutch tax authorities also indicated that if such an invoice error occurred in the past but didn’t result in revenue loss (because C paid the VAT due), they might not retroactively penalize. But going forward, no leniency.
• Other Member States:
  • Austria – After losing the Hans Bühler case (which was an Austrian position rejected by the CJEU), Austria had to accept that triangulation is possible even if B is VAT-registered in Austria. Austrian guidelines now reflect the EU law: the decisive factor is that B uses a foreign VAT ID and isn’t established in the destination. However, Austria, like Germany, is quite strict on formalities (they were the ones to catch Luxury Trust on the invoice issue). Austrian law requires the invoice to mention “Steuerschuldnerschaft des Leistungsempfängers” (tax liability of recipient) for reverse charge, and they will enforce that.
  • Italy and Spain – They implement Article 36a and 141 in law but have had some unique practices. For instance, Italy historically required an intermediary to issue a “self-invoice” for the acquisition under triangulation; however, since 2020 these requirements are adjusted to EU rules and an invoice reference suffices. Both Italy and Spain require an explicit invoice mention for reverse charge (in Spanish, “Inversión del sujeto pasivo”). These countries also often require the EC Sales List to indicate the triangulation (typically by a code). Non-compliance can lead to losing the exemption (though post-Hans Bühler, the trend is to treat it as curable).
  • Central/Eastern Europe – Many CEE countries follow the letter of the Directive closely now. For example, Poland updated its VAT Act in 2020 to incorporate Article 36a. Polish law requires the intermediary to provide the dispatch-country VAT ID to apply the exception (and to report transactions in the EU summary). Poland in the past had some extra reporting for triangulation (like specifying it in VAT returns), but now they align with EU norms.
  • Belgium, Luxembourg – Known for pragmatism, they allow multiple parties to arrange transport as long as one continuous movement can be evidenced. They also have usually allowed triangulation even if more than 3 parties (taking a similar view to the Commission’s Note, now confirmed by the court).
  • Scandinavia – Generally straightforward: e.g., Sweden directly references the EU rules; their guidance clarifies with examples which sale is the IC supply depending on who arranges transport. They too stress invoice wording for reverse charge.
  • UK (when it was in the EU) – The UK had similar chain rules and a domestic triangulation simplification. Interestingly, the UK allowed triangulation even with four parties (they called it an “extended triangulation” if conditions met). Now post-Brexit, UK to EU chains follow import/export rules, but the historical UK practice actually prefigured the 2025 decision allowing a fourth party.

• Tax authorities conduct cross-checks (VIES, EC Sales Lists, customs export data) to ensure the declared intra-Community supplies match acquisitions across countries. Businesses are expected to have transport documents readily available to prove goods moved cross-border (especially since 2020, as the “quick fixes” made having two non-contradictory pieces of evidence a condition for zero-rating).
• There’s less tolerance for errors: Luxury Trust is a prime example. Another example: if a company forgets to include a customer’s VAT ID or doesn’t list a sale in the EC Sales List, some countries will temporarily deny the exemption until it’s fixed (Article 138(1a) allows that). While courts may ultimately forgive genuine mistakes, it’s a costly process to appeal.
• “Know Your Customer”: With the rise of missing trader fraud, tax authorities expect businesses to verify their buyers. The 2025 Ključarovci case highlights that if your immediate customer is a conduit to a fraud, you can lose VAT relief. As KPMG observers noted, companies should check VAT registrations (VIES screenshots), commercial documentation, and watch for red flags. Some tax offices even ask for proof that you verified the VAT number of your buyer (especially when auditing zero-VAT supplies). [kpmg.com]
• E-invoicing and Digital Reporting: As part of ViDA, many countries are introducing e-invoicing mandates. These systems will likely enforce inclusion of things like the “reverse charge” tag automatically (since invoices will have structured data fields). By 2030, when EU-wide e-invoicing for B2B is set, errors like Luxury Trust’s might be systematically prevented (or at least flagged in real time). Italy already has a realtime e-invoice system and one of the data fields is the nature of transaction, which includes triangulation codes.
• EC Sales List compliance: Filing these accurately and timely has grown in importance. In some countries, if you miss reporting a triangular sale on the EC list, the simplification technically shouldn’t apply (Article 42). While courts may be lenient if no revenue loss, a business might still face penalties or have to undergo a dispute. Automation and integration of ERP systems with VAT reporting can help minimize such misses.

• The correct party arranges transport (and that it’s documented who did).
• The correct VAT ID is used and communicated.
• Invoices have all required language.
• EC Sales Listings are accurate.
• Their customers (especially in triangulation) are bona fide and will honor the reverse-charge.