First, the VAT authorities have very recently explained in circular letter 2021/C/96 that the VAT exemption for services directly connected with the export of goods outside the EU can only be applied if such services are directly rendered to the consignor or the consignee of the exported goods. This point of view, which is based on the EU Court’s decision in L.Č. IK (case C-288/16), rejects the application of this VAT exemption for services rendered by a subcontractor of the transport company that acts for the consignor/consignee. This change in the Belgian rules should in principle apply as from 1 January 2022. However, due to the impact, the VAT authorities have recently decided to postpone the application of the new rules until 1 April 2022 (addendum circular letter 2021/C/101 of 27 October 2021).
Although VAT on subcontracted services in connection with the export of goods should be recoverable by logistics and transport service providers, this could increase the VAT-prefinancing cost. In case of any errors, logistics service providers face VAT claims with fines (10% to 20%) and late payment interest (0.8% per month).
It is clear that the application of VAT exemptions for logistics and transport services relating to import/export transactions must be addressed with the greatest attention and caution. In practice, we have noticed that such exemptions are often applied too easily by businesses. Here we can refer to other VAT exemptions for logistics activities in which the conditions are not always that easy to apply:
- Services relating to the import of goods into the EU: this exemption applies to transport, loading/unloading, packaging, customs formalities and other services in connection with the import of goods under the condition that the value of these services is included in the taxable amount of the imported goods. This condition requires that the value of these services should be subject to import VAT, which applies for the import of the goods. Logistics service providers applying the VAT exemption should be able to prove this condition during a VAT audit (by referring, for example, to import documents).
- Warehousing services: Belgian VAT should not apply if the client is established outside Belgium and the warehousing services are not limited to the granting of “exclusive rights” on (a part of) the warehouse. If subject to Belgian VAT, then VAT exemptions could apply (i) if the warehouse is a customs warehouse or a VAT warehouse or(ii) if the goods are under a special customs regime (e.g. temporary import) or (iii) if the goods are destined for export out of the EU. Again, application of a VAT exemption requires proof that the conditions have been fulfilled (e.g. link with export or a special customs regime).
- Services relating to goods under a special customs or VAT warehousing regime: services rendered for goods in a customs or VAT warehouse or under a special customs procedure, such as temporary import, inward processing or customs transit, can benefit from a VAT exemption. Besides warehousing services, this can apply to certain logistics services, such as transport services, the loading/unloading of goods, packaging, import/export formalities under EU law and some processing services that are allowed under the customs procedure. The Belgian administrative guidelines clarify in detail which services fall under this exemption. Again, sufficient proof for applying the exemption is required.
- Services and supplies for seagoing vessels: some years ago, the application of this VAT exemption was narrowed as Belgian guidelines, to comply with the European Commission's view, now require that the vessel is at least 70% used on the high seas (circular letter 2019/C/44).
Also, it has been clarified in EU case law that this VAT exemption can be applied to services rendered by subcontractors to suppliers of a vessel operator, contrary to the VAT exemption above for services related to the export of goods, if these services are supplied for the direct needs of the vessel or its cargo (ECJ in A oy, C-33/16). The latter decision covered the services of loading and unloading of vessels, for which it should be possible to identify the vessel for which the services are rendered, even though these services are rendered by subcontractors. However, referring to older case law, the VAT exemption is in principle not accepted for the supply of goods for fueling and the provisioning of a ship by a subcontractor (ECJ in Velker, C-185/89; but re-assessed for chain supplies in Fast Bunkering, C-526/13).
If invoiced in a cross-border B2B context, then the application of a VAT exemption should only be relevant if the services are located for VAT in Belgium. If so, it is not sufficient to state that the activity is related to (sea)port activities to apply a VAT exemption. In practice, this requires that sufficient proof and documentation can be submitted by the taxable person that applies a VAT exemption. Following EU case law (Cartrans, C-495/17), the Belgian VAT authorities accept all kind of documents (invoices, order documents, contracts, warehousing documents, etc.). Businesses applying these VAT exemptions should have sufficient internal control mechanisms to make sure that adequate proof is available in case of a VAT audit.
The Tiberghien VAT team can assist you in auditing these processes to guarantee that VAT is applied in the correct way. If you would like any further information, then please do not hesitate to contact us.