Installation and assembly

by Toon Hasselman

In my VAT practice, I have to deal with cross-border activities on almost a daily basis. These activities range from a simple sui generis B2B service, a straightforward intracommunity transaction with ordinary goods to more complex ones, such as the supply of a so-called “freeze tunnel” to a Belgian french fries factory (factory) by a Dutch business (trader) and by a Dutch construction company (constructor), and delivered on location in Belgium.

At first sight, this is not that diffcult for a VAT expert, assuming that it is just the delivery of some simple object and the transport is organised by the constructor. The constructor makes a zero-rated intracommunity supply, the trader registers for VAT in Belgium to report an intracommunity acquisition, and the VAT due on the following local Belgian supply is levied from the factory by way of the reverse charge. Simple comme bonjour!

However, it turned out that the freeze tunnel consisted of seven prefabricated parts of eight meters each, all transported separately on deep loaders to Belgium, welded together at the location, mounted to the ground, connected to utilities, and integrated in the production process of the factory (between the huge frying pans and the packing department).

The tunnel was able to freeze a ton of hot fries (181 degrees Celsius to minus 18) in eight minutes.

The delivery of this installation was accepted after being tested and proven on location. A simple intracommunity transaction? Perhaps.

Can the supply of a machine be seen as an intracommunity supply (even if tailor-made, tested and connected to utilities)? As there is no definition of a machine, who knows? Maybe it is the supply of real estate? Connected to the ground with bolts, deemed to remain in place for years, easy to dismantle and replace, how much effort needed by how many people? Again, there is no clear answer. Perhaps it is an assembly/ installation then? One contract? Does the installation lose its independency when integrated into the factory?

It is not comparable with an IKEA do-it-yourself double bed package. The issue here is that the compliance is different for the above-mentioned qualifications and failing to meet the “correct” one (which depends on the arbitrary decision of the Dutch and Belgian VAT administration) could result in huge penalties. For example, in Belgium, there is a 10% penalty for failing to report an intracommunity acquisition (even if the VAT due is fully deductible in the same VAT return!).

Photo: JeanLuc - stock.adobe.com

International Tax Law Indirect Taxes International Taxation Netherlands VAT Value Added Taxes EJP