Commercial triangular transactions are one of the most complex operations in international trade, but also one of the most useful if you have a business in Italy that deals with cross-border exports or purchases of goods. This takes place when three parties from different countries are involved in a single transaction and the goods are shipped directly from the first to the third party, without passing through the intermediary's premises.

Understanding how VAT triangular transactions work, intra-EU and extra-EU alike, is key to applying VAT correctly and complying with tax obligations. In this article, you will learn what triangular transactions are, how they work in EU and extra-EU settings, and what rules govern them. You’ll also see practical examples and best practices for managing them correctly in your business.

What’s in this article?

• Definition of triangular transactions in trade and how they work
  
• EU VAT triangular transactions
  
• Extra-EU VAT triangular transactions
  
• VAT triangular transactions within Italy
  
• EU and Italian regulations and compliance
  
• Impact and best practices for Italian businesses
  
• VAT triangular transactions and e-invoicing
  
• How Stripe Tax can help
  

Definition of triangular transactions in trade and how they work

In trade, triangular transactions take place when three separate parties, located in different countries or in the same country, are involved in a single sale, and the goods are shipped directly from the first supplier to the end customer, without passing through the intermediary's warehouse.

The key players in commercial triangular transactions are:

• The first supplier, who sells the goods
  
• The intermediary transferee, who buys from the first supplier and resells to a third party
  
• The final recipient, who physically receives the goods
  

The distinctive feature of triangular transactions is the direct flow of goods, which requires careful management of transport documentation. The necessary documentation in triangular transactions consists of the transport document and the CMR form:

• The transport document—DDT (Documento di Trasporto) is the document that accompanies goods during delivery within Italy or within the EU and serves to prove the transfer of ownership and the time of shipment.

• The CMR form (Convention des Marchandises par Route) is the international consignment note that certifies the shipment of goods by road between countries that are signatories to the 1956 Geneva Convention. The CMR is needed to prove the physical movement of goods in EU or extra-EU triangular transactions.

The meaning of triangular transactions varies depending on the territories concerned. A distinction can be made among the following:

• EU VAT triangular transactions: If three companies established in three different EU member states participate in the same physical movement of goods
  
• Extra-EU VAT triangular transactions: If one of the parties is located outside the European Union
  
• VAT triangular transactions within Italy: If all parties operate in Italy
  

What are VAT triangular transactions and how do they work?

In summary, VAT triangular transactions are transactions in which three parties from different countries participate in the same sale of goods. The first company sells to the intermediary, which resells to the end customer, but the goods are shipped directly from the first to the third party. The transaction may be intra-EU or extra-EU, and the first transfer may be exempt from VAT if the following conditions are met:

• All parties must be registered with VIES (the EU VAT Information Exchange System)
  
• The transfer of goods is supported by transport documents (DDT and CMR)
  
• The Italian company submits the Intrastat declaration relating to the Intra-EU transfer
  
• The transaction must be invoiced with the proper legal reference for nontaxability (e.g., Article 41 of Italian Legislative Decree No. 331/93)
  

EU VAT triangular transactions

Intra-EU triangular transactions take place when three parties established in three different EU member states carry out a chain of transfers with a single physical movement of goods. The rules governing intra-EU triangular transactions derive mainly from Article 141 of Council Directive 2006/112/EC (VAT Directive), transposed in Italy by Article 8 of Italian Presidential Decree No. 633 of 1972.

Below is an example of a VAT triangular transaction:

An Italian company (A) sells to a customer in Germany (B), which in turn resells the goods to a company in France (C). The goods are shipped directly from Italy and arrive in France, on behalf of the German intermediary.

In this EU triangular transaction:

• The transfer from A to B is not subject to VAT in Italy (Article 41 of Italian Legislative Decree No. 331/93).
  
• The transfer from B to C is subject to VAT in France, where the intermediary must be identified for VAT purposes.
  

In some cases, the intermediary organizes the transport of the goods. In the previous example, German company B instructs a carrier to collect the goods from Italian company A and deliver them directly to French end customer C. When the intermediary manages the shipment in this way, it is referred to as an EU triangular transaction with transport provided by the transferee. This type of transaction is recognized by Italian law (Article 41 of Italian Legislative Decree No. 331/93) and allows the first seller to issue a VAT-exempt invoice, provided that the transfer of the goods is proven by appropriate documentation, such as the CMR or the DDT signed by the carrier.

For the transaction to be recognized as an EU VAT triangular transaction, certain conditions must be met:

• All parties must be registered with VIES.
  
• Shipments by triangular transaction must be documented by a triangular transaction DDT or CMR signed by the carrier.
  
• The e-invoice issued by the first seller must include the regulatory reference justifying nontaxable status for VAT purposes.
  
• Italian companies must also provide Intrastat communication relating to EU transfers.
  

Extra-EU VAT triangular transactions

Extra-EU VAT triangular transactions take place when one of the three parties is located outside the EU, for example in the US, Switzerland, or the UK. In this case, the movement of goods is considered export or import, depending on the flow.

An example is provided below:

An Italian company (A) sells to an intermediary in Germany (B), which resells the goods to an American customer (C). The goods are shipped directly from Italy to the US.

• The first transfer (A→B) is an export triangular transaction, not subject to VAT in Italy pursuant to Article 8 of Italian Presidential Decree No. 633/72.
  
• The German intermediary makes an extra-EU sale to the American customer (B→C), subject to the customs rules of the country of destination.
  

Again, transport documentation is key: the customs export declaration and the CMR serve as proof that the goods have physically left the territory of the EU.

VAT triangular transactions within Italy

VAT triangular transactions within Italy take place when all parties have a permanent establishment in Italy, but the goods are shipped directly from the first supplier to the end customer, on behalf of the intermediary. Even though these transactions do not involve other countries, the commercial logic is the same: the intermediary does not take physical possession of the goods, but only manages the sale.

In this case:

• The first supplier issues a VAT invoice to the intermediary, indicating that the shipment is part of a triangular transaction.
  
• The intermediary issues a standard VAT invoice to the end customer.
  
• The DDT must clearly state that the delivery is being made on behalf of the intermediary, specifying the number of related invoices.
  

Although there are no VAT concessions as in EU or extra-EU triangular transactions, proper document management remains key to show consistency between invoicing and movement of goods, avoiding disputes in the event of tax audits.

Types of VAT triangular transactions

EU and Italian regulations and compliance

VAT triangular transactions are regulated by a combination of EU and Italian legislation. As already mentioned, at the European level, the legal basis is Directive 2006/112/EC, which sets out the general principles of territoriality and nontaxability for intra-EU transactions. In Italy, the main references are:

• Italian Presidential Decree No. 633/72, Articles 8, 38 and 41
  
• Italian Legislative Decree No. 331/1993 governing intra-EU trade
  
• Circular No. 13 of February 23, 1994 from the Ministry of Finance, which provides clarification on the new VAT provisions contained in Italian Legislative Decree No. 331 of August 30, 1993, (governing relations between member states) and on the amendments to Italian Presidential Decree No. 633 of 1972 concerning territoriality, export transfers, and imports
  
• Provisions of the Italian Revenue Agency and interpretative circulars (such as Circular No. 37/E/2011)
  

To be compliant, an EU VAT triangular transaction must meet three basic conditions:

• Valid VAT identification for all parties involved (active VIES number)
  
• Proof of intra-EU transport, through documentation such as CMR or DDT
  
• Proper issuance and recording of invoices, which must include the legislative reference for nontaxability
  

In the case of extra-EU triangular transactions, compliance also depends on customs requirements. Triangular transactions for export purposes require proof of the physical exit of goods from EU territory, generally documented by means of a customs export declaration.

How do VAT triangular transactions work in dropshipping?

For those working in the ecommerce sector, a further complication concerns VAT triangular transactions in dropshipping. Dropshipping, or online sales on behalf of third parties, is an online sales model in which the seller does not physically manage the warehouse: when they receive an order, they forward it to the supplier (often located in another country), which ships the product directly to the end customer.

When dropshipping is carried out between parties residing in different countries, it can constitute a genuine VAT triangular transaction, as the goods travel directly from the supplier to the customer without passing through the intermediary seller. In such cases, the appropriate classification of the transaction, whether intra-EU or extra-EU, is necessary in order to determine whether VAT should be applied in the country of origin, in the country of destination, or whether the transaction falls within the scope of nontaxable supplies.

Impact and best practices for Italian businesses

VAT triangular transactions offer significant advantages in terms of commercial flexibility, but they also entail tax risks if managed improperly. An error in invoicing or transport documentation could lead the Italian Revenue Agency to disallow the transaction as nontaxable, resulting in VAT recovery and penalties.

Below are some best practices to follow:

• Always check the EU VAT numbers of your business partners on the VIES portal before issuing an invoice.
  
• Keep transport documents (DDT, CMR, customs bills) as proof of shipment as part of a triangular transaction.
  
• Correctly indicate the regulatory nontaxable reference in the e-invoice: for example, Article 41 of Italian Legislative Decree No. 331/93 for EU triangular transactions or Article 8 of Italian Presidential Decree No. 633/72 for extra-EU triangular transactions.
  
• Manage the triangular transaction with foreign suppliers transparently, clarifying who is actually shipping the goods.
  
• If you operate in ecommerce, beware of dropshipping triangular transactions: even if you do not manage logistics, you may have VAT obligations in the country of destination.
  

VAT triangular transactions and e-invoicing

Since 2019, e-invoicing has been mandatory for transactions between parties based in Italy, and starting on July 1, 2022, it has also been mandatory for transactions with foreign parties, replacing the old esterometro system. Nowadays, therefore, even VAT triangular transactions involving foreign counterparties must be transmitted to the Exchange System (Sistema di Interscambio, or SdI) using the XML electronic format and the correct VAT codes.

Managing a triangular transaction with an e-invoice means correctly filling in the following:

• VAT fields indicating the nature of the transaction:
  
  • N3.2 for nontaxable intra-EU transfers (Article 41 of Italian Legislative Decree No. 331/93)
    
  • N3.1 for exports (Article 8 of Italian Presidential Decree No. 633/72)
    
• Description of the transaction, specifying that the shipment is part of a triangular transaction and, if possible, who the entity responsible for transport is
  
• Foreign identification details of the customer or supplier, even if not registered with VIES
  

In extra-EU triangular transactions, the customs export declaration is the main proof of nontaxability and must be kept together with the e-invoice for any checks. In intra-EU triangular transactions, however, you must keep the CMR form or DDT proving that the goods have been delivered to another member state.

The digitalization of invoicing has simplified the management of commercial triangular transactions, allowing for greater traceability of flows and reducing formal errors. However, digital invoicing requires that accounting systems and management software be updated regularly. The software must be able to manage e-invoices and, in particular, to:

• Check the validity of EU VAT numbers (VIES)
  
• Automatically fill in XML fields with the correct VAT codes
  
• Transmit the data to the SdI within the prescribed time limits (within 12 days of issuing the invoice or, for receipts from foreign parties, by the 15th day of the following month)
  

How Stripe Tax can help

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