The term “triangular transactions” refers to commercial activities involving three companies based in different EU countries, where goods move directly from the first country to the third without passing through the second.

These sales between companies subject to value-added tax (VAT) in different EU member countries benefit from a simplified VAT system under EU regulations. The goal is to relieve the intermediary from tax obligations in the destination member country. This article examines the VAT exemptions and requirements for this type of activity.

What’s in this article?

• Triangular transactions explained
  
• Triangular transaction participants
  
• Invoicing in a triangular transaction
  
• VAT declaration for French companies
  
• Paying VAT in a triangular transaction
  

Triangular transactions explained

An intra-community triangular transaction is between entities subject to VAT within the EU. It starts when a company sells goods to another in a different EU country. The second company then resells these items to a company in a third EU country. The first then ships the products directly to the third, passing through at least one EU country.

Previously, VAT reporting and payment obligations for these arrangements were complicated. Fortunately, Article 141 of Directive 2006/112/EC of November 28, 2006, introduced measures to simplify how the tax authority applies taxation to these transactions.

Thanks to these measures, the intermediary company can be exempt from VAT on these commercial activities. In practice, VAT obligations apply to the physical delivery of goods – specifically, the intra-community acquisition by the end customer – rather than to the entire series of operations.

Triangular transaction participants

All parties involved must be VAT-registered in their respective EU member countries.

The seller

The seller or supplier is a company based in an EU member country that sells a product or goods in another EU country. This entity ships the items directly to the buyer or end customer through a third party.

The intermediary

This reseller, located in a second EU member country, purchases the product from the seller to resell it in a third EU country. In triangular transactions, the goods never physically pass through the intermediary’s location.

The buyer

The buyer is the end customer who purchases the product from the intermediary. The principles of a triangular transaction apply exclusively if the seller delivers the items directly to the buyer.

For example, a French company sells 10 tons of cheese to a German company, which then resells it to an Italian company. The French company ships the cheese directly from France to Italy, bypassing Germany entirely. In this scenario, the Italian company is responsible for paying VAT on the intra-community acquisition.

Invoicing in a triangular transaction

The benefit of a triangular transaction is that it simplifies VAT obligations for the companies involved.

The seller and the intermediary must issue tax-exclusive invoices: the seller invoices the intermediary without tax, as the deal is VAT-exempt. Likewise, the intermediary issues a VAT-free invoice to the final buyer, as the transaction qualifies as triangular.

Invoices must clearly state the VAT exemption by including one of the following phrases:

• “VAT exemption, per Article 262 ter I of the General Tax Code” (specific to French law)
  
• “Exemption under Article 138 of Directive 2006/112/EC as amended” (a reference to the applicable European directive)
  

Invoices also need to specify the intra-community VAT number of each company involved.

VAT declaration for French companies

The initial seller must declare the intra-community supply as not subject to tax in their VAT return. This filing justifies the relief and helps track the movement of goods within the EU.

The intermediary needs to file a report for the intra-community acquisition and submit a declaration for the subsequent supply.

Finally, the end customer must report the intra-community acquisition of goods in their VAT declaration.

A company in France, whether acting as the seller, intermediary, or end customer, must include this information in its VAT declaration, following the applicable reporting system (form CA3 for monthly filings or form CA12 for annual reports).

Paying VAT in a triangular transaction

If you meet all conditions, the end customer is responsible for paying VAT on the intra-community acquisition of goods in the relevant member country. The purchaser is required to apply the rate applicable in their country.

The other participants in a triangular transaction are exempt from this levy. The Official Bulletin of Public Finances (BOFiP) provides more information.

With Stripe Tax, companies subject to VAT in France can ensure they declare and pay this levy within the required deadline. Enterprises can focus on their core business by choosing Stripe Tax while securing compliance with the complex VAT regulations for triangular transactions.