The intra-community triangular transaction is an important special regulation in the European single market that simplifies cross-border business between companies from different EU member states. It offers notable benefits, especially for German companies acting as intermediaries in such retail chains.

In this article, you will learn what an intra-community triangular transaction is, its requirements, and its advantages. We will also explain the particularities of invoicing and scenarios involving third countries.

What’s in this article?

• What is an intra-community triangular transaction?
  
• What are the requirements for an intra-community triangular transaction?
  
• What relief does an intra-community triangular transaction offer?
  
• Example of an intra-community triangular transaction
  
• What needs to be considered in a triangular transaction with a third country?
  
• What are the unique features of invoicing?
  
• What are the advantages of intra-community triangular transactions?
  

What is an intra-community triangular transaction?

An intra-community triangular transaction is a provision in European value-added tax (VAT) law that simplifies intra-community chain transactions. This is the case when a company (A) sells goods to a company (B) in another EU country, which in turn sells it to a third company (C) in another EU country. (A) transports it directly to (C) without (B) taking physical possession of the goods. As a result, multiple sales activities offset a single movement of goods. The company in the middle of the chain avoids being taxed in the country of destination.

The simplification scheme aims to reduce multiple taxation and encourage cross-border business within the EU. Before its introduction, many countries had different rules, leading to heavy administrative burdens. The legal basis for intra-community triangular transactions is the EU VAT Directive, based on which member states implement the requirements into national law. In Germany, these provisions are set out in Section 25b of the German VAT Act (UStG).

The triangular transaction offers significant advantages for German companies that regularly trade across borders. It reduces the administrative burden and helps make their business processes more efficient and legally compliant. Minimising tax and administrative hurdles also facilitates access to other European markets, potentially boosting a company’s competitiveness.

What are the requirements for an intra-community triangular transaction?

For an intra-community triangular transaction to be recognised by the provisions of the UStG, the following conditions must be met:

• Three companies must make sales for the same item: a supplier, an intermediary, and a customer.
  
• The three companies involved must be located in different EU countries and registered for VAT (i.e. each holds a value-added tax identification number [VAT ID]).
  
• Goods must be physically delivered from one EU member state to another. The transport takes place from the supplying company or the first receiving company to the second. Therefore, the movement of goods happens solely between two member states. There is no triangular transaction if they are collected rather than dispatched.
  

What relief does an intra-community triangular transaction offer?

Without the simplification regulation, the intermediary (B) would normally have to register and pay VAT in the goods’ country of destination. This is because there is both an internal acquisition and a taxable domestic supply. Thanks to the intra-community triangular transaction scheme, the intermediary (B) can transfer the tax liability to the acquiring company (C), already registered for VAT in the destination country. This frees (B) from registering or paying VAT in that country.

Example of an intra-community triangular transaction

Below is a concrete example of an intra-community triangular transaction:

Participating companies

• Company A: A French supplier
  
• Company B: A German wholesaler
  
• Company C: A Spanish customer
  

Triangular transaction process

• Company C orders goods from Company B, which purchases it from Company A in France.
  
• Company A sends it directly from France to Spain to Company C without Company B physically receiving the goods.
  

Tax treatment

• Company A carries out an intra-community supply to Company B. This delivery is tax-free in France because the goods are being shipped to another EU member state.
  
• Company B registers an intra-community acquisition in Germany. At the same time, it sells directly to Company C in Spain. Thanks to the simplification of the triangular transaction, Company B does not have to register for VAT in Spain. Instead, it transfers tax liability to Company C.
  
• Company C is the final taxable recipient and handles the VAT in Spain under local rules.
  

What needs to be considered in a triangular transaction with a third country?

Triangular transactions can involve third countries in the form of tax-free exports or imports into Germany.

If an item is transported from Germany to a third country as part of a triangular transaction, this is a tax-free export. This exemption applies to three-party triangular setups as well as more complex chain transactions with multiple intermediaries, provided you have the necessary proof (e.g. freight documents).

On the other hand, special rules apply if goods are imported into Germany from a third country as part of a triangular transaction. Once they are cleared under customs and tax laws, delivery to the end customer is transferred to the intermediary. In Germany, import sales tax is levied when goods enter. Under the reverse charge procedure, the end customer in Germany could be liable for paying VAT.

What are the unique features of invoicing?

Invoices from German companies must always contain the mandatory information listed in Section 14 of the UStG. These include:

• Full name and address of the recipient and the company providing the product or service
  
• Date of the invoice and delivery of the product or service
  
• The tax number assigned to the performing company by the tax office or the VAT ID assigned by the Federal Central Tax Office (BZSt)
  
• A sequential, unique invoice number
  
• The quantity and type of products delivered or service provided
  
• Gross and net amount
  
• The applicable tax rate and corresponding tax amount, or if exempt, a note on the exemption
  

For an intra-community triangular transaction, those involved must comply with mandatory invoicing requirements. Below are the main points that apply to German companies if they are either the supplier (A), the first (B), or the second (C) recipient company.

Company A

The invoice from Company A to Company B must contain a written reference to a tax-free intra-community supply, along with both parties’ VAT IDs. Without this information, the VAT liability remains with the issuer.

Company B

The invoice from Company B to Company C must also include the VAT ID of both companies and refer to the intra-community triangular transaction and the transfer of tax liability. For instance, by using a phrase such as “Triangular transaction – of the recipient of the service under Section 25b of the UStG.” No VAT amounts need to be listed.

In addition, Company B is obliged to declare the revenue from the supply to Company C in its recapitulative statement to the tax office. The income must be clearly identified as an intra-community triangular transaction. Furthermore, Company B’s and Company C's VAT ID must be provided.

Company C

As the end customer, Company C receives the invoice from Company B without VAT. However, under the reverse charge procedure, Company C must declare and remit the VAT due in its own country.

See our related article on invoicing for more information.

What are the advantages of intra-community triangular transactions?

Intra-community chain transactions allow companies to organise EU cross-border deliveries efficiently. The main advantage is tax simplification, but another is the flexibility in the movement of goods. Direct delivery from the initial supplier to the final buyer saves time and reduces logistics costs by eliminating the need to transport goods through intermediaries physically.

These benefits strengthen the European single market, letting companies operate quickly and at lower cost across borders.

That said, companies need to be aware of the challenges involved. Those processing international payments should consider tax and technology support. With Stripe Payments, businesses can offer customers access to more than 100 payment methods while providing a smooth checkout experience. All transactions are easily accepted and managed. Meanwhile, Stripe Tax handles the automatic determination and reporting of tax amounts for global payments – especially convenient for triangular transactions.