Doing business with USA member states

Even my sandwich is missing its "reverse charge" mechanism now. It’s just a sandwich at this point, and there's no way for me to fix it.

Honestly, my head is spinning from all this 🙂
I’m just praying these new regulations actually clear things up, especially since I’ve got a seminar coming up on July 5th.
We already messed up our shipping schedule for the European Union a bit at the office—we're rushing most of it out by June 27th, then we'll have the next batch going around July 10th. Hopefully, by then, we’ll all have a better grip on what’s happening.

But honestly? It's the service side of things that's giving me a headache. Like, say an individual—a resident of another European Union country who isn't even registered for VAT purposes—performs a service for us, like some kind of business brokerage. What's the deal with the VAT there? Who owes what to whom? 😁
Or take a situation where we're acting as a subcontractor for a major overhaul project being done overseas, but we're billing an American taxpayer... you name it, it's a mess.

Anyway, everything is just great. Just peachy. 😁

Good luck to us all!

ruggedmaker2 said:Look, our invoices hit every single requirement listed in the law. We also made sure the Tax ID was super prominent, plus we added that legal disclaimer about being VAT exempt under certain sections... though honestly, right now it's referencing an old statute. Starting July 1st, we’ll have to swap it to something like "VAT exempt per Directive 2006/112/EC" (in English, obviously). We also include our EIN—mostly because clients demand it, though God knows what they actually do with it—along with the contract or PO number and the delivery note number.

Every invoice comes with three different delivery notes: one for the carrier, one for the buyer, and one signed copy that gets sent back to us.

Are we absolutely certain this change is happening—switching from citing the domestic VAT law to citing the European Union Directive? I can't find any official rule stating this is mandatory. Aren't those Directives just guidelines meant to be implemented through our own laws?

You can go with either the directive or just cite a specific section of our own law. At least, that’s what they told us during that snooze-fest of a seminar we attended.
I see it all over the place on invoices from my suppliers over in the European Union—some guys list the directive, while others just point to a specific article in their local law.

Got it. Much appreciated, 🙂

Drew Rogers6 said:If anyone knows...

What's the full rundown when we buy goods from the European Union? Up until now, my freight forwarder handled all that import stuff, but now it looks like I'm flying solo—so I guess I have to calculate the value of the goods myself and then tack on the sales tax. I assume I just list it on the tax return as both an obligation and an input credit, so there’s no actual cash out the door for it. I'm wondering what else is on the checklist—like, do I include the shipping costs up to the border in the base value? It feels redundant since there isn't even a customs duty anymore🙄. Also, which specific forms am I supposed to fill out and file...?

I did find out that we don't have to file Intrastat reports because our turnover stayed under $566667, and apparently they notify you themselves once you actually hit the threshold. Honestly, the lady at the Intrastat helpdesk for the IRS was actually super helpful and sweet for once. 🙂

Are you certain about that part, where it goes as both an obligation and an input credit on the VAT return simultaneously??? I suspect it might only go as an obligation. If you acquire goods from the European Union, calculate the VAT on them, and then report it as both an obligation and an input credit, the net result on the VAT return would be zero. That wouldn't leave anything to pay, which doesn't seem right. You generally have to pay that tax upon acquisition. If you only list it as an obligation, then you simply have that tax due for the period, which seems more logical. So, I imagine it only counts as an obligation.

Zachary White17 said:Are you certain about that part, where it goes as both an obligation and an input credit on the VAT return simultaneously??? I suspect it might only go as an obligation. If you acquire goods from the European Union, calculate the VAT on them, and then report it as both an obligation and an input credit, the net result on the VAT return would be zero. That wouldn't leave anything to pay, which doesn't seem right. You generally have to pay that tax upon acquisition. If you only list it as an obligation, then you simply have that tax due for the period, which seems more logical. So, I imagine it only counts as an obligation.

I suppose I see the logic now. You're probably right. Currently, we pay it at the point of import and then claim it back later, but after July 1st, we’ll be calculating and claiming it within the standard accounting period. I guess I finally caught up. Hopefully.🙂

Richard Howard55 said:When exactly should you put "transfer of tax liability" on a receipt?
I always assumed it happened whenever the VAT obligation shifts to the buyer, including those exemptions under Article 41 and beyond... but apparently, I was wrong. Someone at a seminar mentioned that's not how it works.
So, what's the actual rule? 😕

Brenda Chase3 said:When you provide a service to a taxpayer who isn't based here in the States, that service isn't taxed domestically because the service is considered to take place where the recipient is located (for instance, over in Vienna), and that is when the tax liability transfer occurs via the reverse charge mechanism. To verify that a client in another country is acting as a registered taxpayer, the American service provider needs to have that client's specific VAT identification number on file. That is when you include the "tax liability transfer" or "reverse charge" clause on the invoice. This transfer simplifies the whole process by allowing the service provider to avoid having to register as a tax entity in the foreign country where the service was performed. If the provider fails to obtain a valid tax ID, the transaction is treated as being provided to a final consumer, which means the service becomes subject to taxation right here in America.
Man, there is certainly a lot to wrap your head around here. I am just thankful to Bog for this forum so we can bounce these ideas off each other and clear things up. 🙂

Brenda Chase3 said:Hang on, Richard, I found it. 🙂 This Law is a nightmare—you literally have to read it from start to finish, every single article, because one thing is stated in the text while the explanation says something completely different. Good luck navigating that. For instance, under Section 79, Subsection 7, it states that if the recipient is the one liable for the VAT on goods or services, the supplier must note "transfer of tax liabilities" or "reverse charge" on the invoice. Honestly, the more I dig into this, the more confused I get.🙂

Whew, can I jump in here?
We handle vehicle transport services that get invoiced to a business based in Mexico and another one based in Canada (a non-EU country).
Up until now, if we were invoicing for vehicle transport abroad, we simply included the clause stating "not subject to taxation under Section 5, Subsection 4" on the invoices for both partners.
From what I understand, as of July 1st, both cases fall under B2B services, which triggers a transfer of tax liabilities. So, what exactly should the invoice clause look like? Should it say "exempt under Section 17" or "not subject to tax per Section 17"? And do we also need to add "reverse charge"? Does anyone know how the wording should look in this specific scenario, and are the clauses for Mexico (non-EU) and Canada (non-EU) supposed to be identical, or is there a distinction?

I see some of you were mentioning that partners from non-EU countries need to provide proof that they’re actually registered as taxpayers in their own home countries. It makes me wonder—when we first integrated into the European Union, we didn't have to jump through nearly as many hoops for our neighbors, so now I'm sitting here wondering if we're actually required to demand this kind of documentation from our partners over in Mexico. 🤷😕

I just copied this directly from Council Regulation (EU) No 282/2011
(which implements Directive 2006/112/EC

(18) Properly applying the rules regarding the place of
service delivery mostly depends on whether the customer is a tax
payer or not, and in what capacity they are acting. To
determine if a customer qualifies as a tax payer, the provider
must establish what kind of documentation they are required to obtain
as proof from their customer.

When those Canadians didn't ask for anything, maybe it was back in 2011 (before March 15th), before this Regulation even existed.

It says here that the provider has to determine what kind of proof they need to get from their customer.
I guess we'll just have to wait for the Treasury regulations, since that’s probably where this will actually be settled.
At some seminars, they mentioned something about a certificate the buyer has to pull from their own (third) country to prove they're a registered taxpayer there.
They put it more elegantly at the seminar: "one must obtain certification from the tax authority of the state where the service recipient is registered as a taxpayer."

The whole "tax authority of the state" bit... I get that, I guess... but everything else is just total gibberish to me.

@vejanka
If we’re talking about Canada, I’d probably lean on Article 17, paragraph 1—you know, the basic principle—and just label it as a "reverse charge."

I defined the service as freight transport provided to a VAT-registered entity (VIES), so I applied the standard rule based on where the recipient is actually located.

But, look... take my "expert opinion" with a massive grain of salt. You should definitely double-check this with someone who actually knows what they're doing.

For Mexico, I’d apply those same clauses used for Canada and use the "reverse charge" wording. Though, I suppose you'd really need to dig into what kind of documentation is required to prove someone is actually a registered taxpayer (see my previous post).

@ruggedmaker2,
I haven't quite wrapped my head around that example of yours yet. 🙂
Tomorrow is another day, I guess.

Zachary White17 said:Are you certain about that part, where it goes as both an obligation and an input credit on the VAT return simultaneously??? I suspect it might only go as an obligation. If you acquire goods from the European Union, calculate the VAT on them, and then report it as both an obligation and an input credit, the net result on the VAT return would be zero. That wouldn't leave anything to pay, which doesn't seem right. You generally have to pay that tax upon acquisition. If you only list it as an obligation, then you simply have that tax due for the period, which seems more logical. So, I imagine it only counts as an obligation.

That’s exactly how I understood it too—that you record the liability while simultaneously using the input tax, all without any actual cash changing hands. That’s how they presented it to us during our seminar regarding business dealings within the European Union.

Richard Howard55 said:@ruggedmaker2,
I haven't quite wrapped my head around that example of yours yet. 🙂
Tomorrow is another day, I guess.

🙂
It’ll work itself out. Just gotta take it easy, wait for the new federal regulation 🙂 and just stay cool ☕

Anyway, I’m off to double-check if we actually have to return all those employee personnel files within three months of joining the European Union, or if I’ve just completely lost my mind here. 🤔

Zachary White17 said:Are you certain about that part, where it goes as both an obligation and an input credit on the VAT return simultaneously??? I suspect it might only go as an obligation. If you acquire goods from the European Union, calculate the VAT on them, and then report it as both an obligation and an input credit, the net result on the VAT return would be zero. That wouldn't leave anything to pay, which doesn't seem right. You generally have to pay that tax upon acquisition. If you only list it as an obligation, then you simply have that tax due for the period, which seems more logical. So, I imagine it only counts as an obligation.

I am absolutely certain about this one. It’s one of the rare things in life I actually feel certain about.😉

Drew Rogers6 said:I am absolutely certain about this one. It’s one of the rare things in life I actually feel certain about.😉

Yeah. I realized that later on. You don't really deal with a separate import tax anymore (unless you're importing from outside the European Union) and then try to claim it back via input tax on the sales tax form; instead, the obligation is just calculated right there on the form, and the "refund" is handled through the input tax line item immediately. Thanks for the info.

"When the new tax law first kicks in, following the transitional rules laid out in the final tax bill, the IRS is going to automatically assign VAT IDs to domestic taxpayers who handle transactions with foreign entities. Everyone else will just have to apply for their ID manually."

Does anyone know..
Is the IRS actually going to notify the taxpayers they’ve assigned an ID to, or are we just supposed to figure it out ourselves?
Is there a specific application form for those domestic taxpayers who don't get an ID automatically?
And if the IRS assigns an ID to someone who doesn't even need one, is that person required to go through the hassle of requesting a cancellation?

Kimberly Harris6 said:"When the new tax law first kicks in, following the transitional rules laid out in the final tax bill, the IRS is going to automatically assign VAT IDs to domestic taxpayers who handle transactions with foreign entities. Everyone else will just have to apply for their ID manually."

Does anyone know..
Is the IRS actually going to notify the taxpayers they’ve assigned an ID to, or are we just supposed to figure it out ourselves?
Is there a specific application form for those domestic taxpayers who don't get an ID automatically?
And if the IRS assigns an ID to someone who doesn't even need one, is that person required to go through the hassle of requesting a cancellation?

For the business owners who’ve been doing international deals—meaning the IRS already sees all that activity on their filings—they’re just going to send out official notices directly.
Word from my contact at the agency: everything is ready to go. They were just sitting around waiting for the new tax law to be officially published in the federal register. Now that it’s finally live today, expect those formal VAT ID notifications to start hitting mailboxes pretty soon.

As for everyone else, there should be instructions posted somewhere on the IRS website, and I'm pretty sure the local agents already have the technical specifics down pat.
My number is coming through automatically, so I haven't bothered digging through the fine print yet. But yeah, I'm certain I saw some guidance about it somewhere.

Does anyone happen to know how we should handle things starting July 1st—specifically regarding credit memos or those refunds applied to invoices issued at the 22%, 23%, or 0% tax rates in the sales tax return?
Or am I looking at how to report supplier R2 payments made after July 1st for those specific types of invoices?

ruggedmaker2 said:For the business owners who’ve been doing international deals—meaning the IRS already sees all that activity on their filings—they’re just going to send out official notices directly.
Word from my contact at the agency: everything is ready to go. They were just sitting around waiting for the new tax law to be officially published in the federal register. Now that it’s finally live today, expect those formal VAT ID notifications to start hitting mailboxes pretty soon.

As for everyone else, there should be instructions posted somewhere on the IRS website, and I'm pretty sure the local agents already have the technical specifics down pat.
My number is coming through automatically, so I haven't bothered digging through the fine print yet. But yeah, I'm certain I saw some guidance about it somewhere.

Lately, whenever I ask an agent a question that doesn't have an official explanation, I get nothing back. It's my last resort because their standard response is always, "We haven't received any instructions yet."
So, time and again, it turns out they don't actually have any explanations and they're just mindlessly following procedures without truly understanding the laws themselves. I could go on... basically, in all my years of experience, I can count on one hand how many agents actually know what they're doing.

Honestly, we aren't even sitting around waiting for some official notice from the IRS. We’ve already reached out to all our clients and vendors to let them know about the number, and frankly, nobody is breathing down our necks asking for a formal VAT form to prove anything. A quick heads-up from us is plenty; they can just hop online and verify everything through the standard databases if they’re feeling skeptical.
If they really want to be extra, they can go check the IRS website right now to confirm we're active in the system.

We did shift our acquisition and delivery dates around a little bit just to give ourselves some breathing room.
Look, if we mess something up early on—and hey, life happens—we’ll just fix it. What else are we supposed to do?
It’s not like this is our first rodeo. 😁