Posts by Benjamin Palmer80

So, here’s my situation: I just handle deliveries, so I don't touch the UN filings or the IRS stuff myself. But ever since we joined the USA—and honestly, even before that—we’ve had these constant cases where amounts get lowered because of early payments. I’ve never sent over separate credit memos for those; we just settle everything via email with our partners in Germany, Italy, France, Belgium, and Greece. I just double-checked with our accounting department, and we have never reported those reductions to the UN. We always just reported the full delivery amount. And so far, nobody from the IRS or even Washington, D.C. has called us out to say anything is wrong!☕ So, I’m sticking with my current process...

If I’m a business owner with a registered tax ID, can I charge American sales tax to an individual in Germany who isn't registered for sales tax?
We usually ship our goods to Germany, but we've only ever dealt with clients who provided a valid tax ID. If I'm selling to a regular consumer instead, do I need to include any specific notes on the invoice?

I wanted to run a quick scenario by you all. I have a client based in Italy who places all his orders with me, but I ship the goods directly to his warehouse located in Germany. Since my Italian customer is registered for VAT in Germany under his Italian tax ID, I handle everything via a consolidated return. On the invoice, I make sure to cite the relevant tax exemption code.
This should be perfectly fine, right? It wouldn't qualify as a triangular trade situation, would it?

Yes, we struggled with that too! After July 1st, we went ahead and reorganized our ledger based on the IRS guidebook. Now we have dedicated columns for imports, acquisitions, and other tax-free domestic items. We also set up a specific section in our records for shipments and exports under the IRS guidelines.

ruggedmaker2 said:Can someone please tell me—do you guys actually log invoices for assets acquired from the USA directly into the asset register? Or do you just keep them in a separate tracking log for overseas acquisitions?

We do! However, our software allows us to open multiple ledgers for a single accounting period. Because of that, we maintain a dedicated "acquisition ledger" where we log just the invoice amounts, excluding any sales tax.

gentlepilot45 said:I might be a little late to the party here, but I've got a question:
If we're looking at a B2C invoice for a customer outside the local tax system within the USA, there isn't any tax liability transfer for goods or services—meaning the invoice carries local sales tax. In which field of the tax return does that get filed, and does it need to be included in the Collective report?

If you're charging American sales tax, you record it in columns 17-22 of the ledger based on the specific rate, and it needs to be entered into section II3 on the tax return.
You can't include an invoice like that in the Collective report since you don't have a tax ID for the customer.

darkraven11 said:I am honestly feeling so confused about which exchange rate to use when I'm acquiring assets from the European Union.

I have recorded all the goods that arrived as asset acquisitions using the rate specified by INTRASTAT—which basically means taking the average rate from the first valid exchange rate list for that specific month (you know, the one found on the Federal Reserve website for converting currencies to dollars)
.
Since there can be a gap of up to 20 days between receiving the supplier's invoice and the actual physical arrival of the goods (because our local trucking companies don't exactly race down the highway 🙂), which exchange rate should I actually be using when filling out my sales tax returns?
I just went ahead and used the exact same rate I used for my initial calculations—am I totally messing this up?
If I am, will I need to go back and fix all my previous calculations too?

And honestly, the folks over at the IRS haven't been any help at all with this!🙂

In my humble opinion, INTRASTAT is just a separate statistical report for different purposes than our tax filings, even if they show the same aggregate data. My contact at the IRS told me that whenever we convert foreign currency, we have to follow the standard law and use the Federal Reserve mid-market rate on the date the tax liability is created—which is the date on the shipping notice or invoice.

Drew Rogers6 said:Anyone got an answer?

Here is an excerpt from the IRS website:
Generally, when acquiring goods within the European Union, the price stated on the invoice is accepted unless there is evidence that the amount is incorrect. The tax base for acquiring goods within the European Union is determined in the same manner as for domestic deliveries of the same goods. The IRS will use available business documentation to conduct audits regarding the acquisition of goods from other member states of the European Union.

Regarding the exchange rate you should use, at a seminar hosted by the IRS, they told us to stick to Section 36 for all calculations involving foreign currencies. That rule states we use the Federal Reserve mid-market rate on the day the Sales Tax liability arises. They explained this is usually the date of delivery—which in most cases means the date on the shipping manifest, or the day the supplier actually hands over the goods, even if the shipment takes a few days to reach you.

Patrick Peterson49 said:For now, I’m just gonna stick with "reverse charge" for all my shipments to the USA... it doesn't say anywhere that I can't include that note—plus, Section 79 totally has my back 🙂
(7) When the recipient is responsible for paying the sales tax, the provider has to note "reverse charge" or the English term "reverse charge" on the invoice

Hopefully this is the last time I have to talk about reverse charge, but only regarding goods. Today—for the hundredth time—I called the IRS to ask for a little clarification on why we use or don't use reverse charge on invoices for the USA, and the agent just politely told me, "Ma'am, I don't know what you're struggling with." Look, you can't transfer tax liability if you have an exemption under Section 41 or 45. If there's an exemption, there's simply no tax to transfer! You only shift the tax obligation to the buyer if you actually have a tax liability to begin with (like with certain services), and even then, for physical goods, it's usually limited to specific three-party transactions. 😕

Henry Edwards33 said:Thanks. You won't mind if I double-check this one more time, right?
The whole situation is starting to feel like a bad joke. 🤣

I actually went back through my notes from the training seminars because I honestly thought I was losing my mind and had completely misremembered everything. I attended two different sessions—one before the law was even passed, and another on July 8th. Both times, for services provided to a major firm in Chicago, my notes explicitly stated "IPA - reverse charge."
I even called the consultants, and they gave me the exact same information.

My bad, sorry! I was only asking about goods since I don't deal with services.
The funniest part is that on Reddit, where I consider the IMF's guidance to be "official," it explicitly states that reverse charge must be noted. It’s listed as recent news (in the News section, under the VAT topic from April 1st regarding business specifics with the UN after joining the UN—Part II—goods, imports, and exports, under point 1.1., dated June 14, 2013); I even quoted it in an earlier post.
It’s written so clearly there that there shouldn't be any doubt that it needs to be included😕 unless I'm just reading it wrong.

Henry Edwards33 said:From what I gather, "reverse charge" can basically apply to any export within the European Union when dealing with a registered taxpayer. It’s just a way of saying the tax liability shifts, even if they should technically cite the specific legal code—but honestly, getting into that level of detail is just splitting hairs 😁

For services, I’ve double-checked everything from professional seminars to calling up consultants directly. Still, I’m going to go over it one more time (maybe two, maybe three) just to be sure. 😁

Yesterday, we finally got a written response from the IRS stating that invoices for the USA should only include the exemption clause from the law or regulation, without mentioning reverse charge.

We had a little discussion at a recent meeting regarding that troublesome "reverse charge" mechanism specifically for goods. Just passing along what we talked about—we haven't reached a final conclusion yet, as we're still waiting on an official response from the IRS.
Here’s their take: That specific term is designed to simplify tax reporting and collection only within the European Union single market and it’s strictly used between member states. It's tied directly to the VAT ID number.
Basically, we can't shift the tax liability to someone when we're exporting goods using customs procedures and an EORI number (so, whether it's Canada or the USA, the VAT ID doesn't apply; you use the EORI because it's an export, even if they look similar). Similarly, with imports from third countries, they can't pass the tax burden onto us because we handle our own tax upon import (nobody transfers it to you; you have to pay it yourself).
Should "reverse charge" be noted for goods delivered within the European Union? That remains a mystery! Since the recipient within the European Union completed a certain acquisition—as proven by delivery notes and invoices—they must file an acquisition report, just as the supplier must file a summary report of deliveries. Somewhere in far-off Brussels, all of that is supposed to be reconciled every month regardless of what anyone wrote on an invoice (yeah, right!) 😁.
Where does the three-way transaction come into play (since all examples involve domestic transactions) if we are dealing with a country outside the European Union? If we're importing into any domestic territory and then clearing the goods within the European Union, we end up back at square one—do we write "reverse charge" for another domestic entity? There is simply no conclusion.

Last week, our local IRS office hosted a presentation regarding sales tax. A few of us raised questions about the reverse charge mechanism, and here was the verdict: when you're delivering GOODS, the reverse charge only applies in tripartite transactions, not in standard B2B deals.🙂
They repeated that several times. It’s completely different for services... honestly, it still makes zero sense to me.
I’ve actually called a handful of my clients—just those involving goods shipments within Chicago—to check their paperwork, and they are all over the place! If I try to do it right, they say it's fine; if I don't, they say it's fine too. They seem more worried about the cents on the invoice than the actual rules. Has anyone else received an invoice for goods or services from another district since July 1st? What does yours actually look like? 🤷

I just took a closer look at that statement requirement. It turns out that only applies if the buyer from another US state handles the transport themselves, rather than for every single delivery within the US. I assume we'll need to provide a similar declaration to our suppliers whenever we're acquiring goods from the European Union.
Article 170.1 of the regulations regarding exemptions under Section 41 of the Law specifies an invoice, a delivery note, or something similar, but Article 170.2 only requires a formal statement when the buyer is the one organizing the pickup (it says "along with the invoice and instead of the documents mentioned in paragraph 1...").

Do we actually need that statement if we're just using LTL shipping? Who even signs off on it—is it the driver who picks up the goods but doesn't deliver them directly to the customer, just heading straight to New York City... or should I just sign a general agreement with my carrier?🙂
I have one question because nothing else seems to make sense here: If my customer from another FBI district organizes the LTL shipment themselves, does that mean I don't have to deal with sales tax since I won't be receiving an invoice for the freight? Could someone please confirm this for me?

Nicole Lee6 said:I'm honestly a bit lost now because of Article 197 in Section 4 ((4) Taxpayers under Section 1 of this article have to include the R-2 designation on invoices, and they can claim the input tax in the accounting period when the invoice is paid.> Does this mean small business owners are simultaneously charging sales tax and claiming input tax for these reverse charge services, or what?!

Article 197.1. states that income tax payers are required to account for sales tax by the end of 2014 based on when the compensation is received or collected except for deliveries or acquisitions within the USA and so on... basically, "reverse charge" applies to your transactions within the USA, so you just account for and deduct the sales tax in the same period you issue or receive the invoices!

Procedure 42 involves releasing imported goods into free circulation while being exempt from Sales Tax because they're destined for a different DC, whereas 63 covers re-importation where you get that same Sales Tax exemption since the items are headed to another DC.
That’s all laid out in Section 44, Paragraph 2 of the Law—specifically 44.1.26. It only kicks in when you import goods from outside the US and then immediately supply them under a Sales Tax exemption per Section 41.1.a and d (like shipping to another DC). At the moment of import, the importer has to provide their tax ID, the recipient's ID, and proof that these goods are strictly intended for transit or shipment from the US to that other DC.
So, you'll enter the value of those supplied goods into column 12 of Form ZP, making sure to convert everything into dollars using whatever exchange rate applies on the 😉likely customs clearance date.
You can actually find a detailed guide online from the Treasury Department's Customs Division—Instruction No. 76/13 from June 28, 2013—which breaks down procedures 42 and 63 in much more detail!

The Treasury Department issued an opinion on June 14, 2013. Here is what it says:

1. Shipments to the DC involving transport (dispatch)

When shipping goods from the US to the DC, you first have to check the VIES database to confirm if the recipient is a registered VAT taxpayer. You need to do this before every single shipment using the website http://ec.europa.eu/taxation_customs/vies/. Every single time, you must print out and save the confirmation showing the recipient is a registered VAT taxpayer in the DC for audit and inspection purposes. This is the supplier's only proof that they can apply the "reverse charge" mechanism, where the recipient handles the tax reporting for goods coming from the US.
- If goods are being shipped to a registered VAT taxpayer in any part of the DC with proof of transport, the US-based supplier in the VAT system doesn't charge VAT (it won't show up on the invoice, as it is exempt), and they must include a mandatory note on the invoice stating "reverse charge."

...so it looks like for every invoice sent to other VAT taxpayers within the European Union, besides the "VAT exempt..." clause, we should probably just write "reverse charge," right?

The same applies to acquisitions from the European Union; they need to put that on the invoice so it qualifies as an acquisition for us.

We’re going to keep pulling all our VAT return data directly from the internal accounting ledgers. Just make sure you log every invoice into the system first, then transfer it to the tax form—even if the billing period doesn't perfectly align with the current filing window.