Name Name of a concept, e.g. a data model concept. In contrast to terms, the name does not depend on a given context, e.g. a country-specific language.	EU VAT validation
Short description Informal and short human-readable definition of a concept.	EU VAT validation is crucial for businesses engaged in cross-border transactions to ensure compliance with regulations, mitigate fraud risks, and avoid financial penalties. CDQ’s Tax Guard product incorporates data quality rules to validate VAT numbers, ensuring businesses meet the EU VAT Quick Fixes requirements and accurately verify their partners' VAT status and linked bank accounts.
Description Informal and comprehensive human-readable definition of a concept.	Validating EU VAT numbers is essential for businesses operating within the EU, as it helps ensure regulatory compliance, mitigates fraud risks, and prevents financial liabilities from incorrect VAT handling. The EU VAT Quick Fixes and DAC7 regulations mandate stringent due diligence, requiring businesses to verify their partners' VAT registration and linked bank accounts, particularly for cross-border transactions. The CDQ Tax Guard supports these efforts by integrating data quality rules that streamline the validation of VAT numbers. This ensures that businesses accurately record VAT IDs, verify compliance with intra-community supply rules, and maintain exemption from VAT liabilities. Additionally, CDQ’s solution automates these checks, enabling organizations to handle high transaction volumes while staying compliant, reducing the risk of penalties and operational disruptions.

Why validating EU VAT numbers

Regulatory Requirements: Many businesses across the EU and beyond are required by law to validate their suppliers' and customers' VAT numbers, ensure they are VAT registered, and verify linked bank accounts to prevent fraud and ensure compliance.
Cross-Border Transactions: With the complexity of VAT compliance across borders, businesses need to ensure that they are accurately accounting for VAT in each transaction. Incorrect VAT handling can lead to fines, penalties, or a loss of tax refunds.
Risk Mitigation & Due Diligence: Businesses must ensure they aren't transacting with non-compliant or fraudulent partners, especially with EU regulations like the EU VAT Quick Fixes and DAC7 that require more stringent due diligence on business partners.
Automation Needs: Large organizations, in particular, need to automate these checks as they deal with high volumes of transactions. Manual checks are not feasible, especially when compliance risks are high and errors can be costly.

Legal Framework for Intra-Community Deliveries in the EU

Deliveries of goods and services to other EU countries by German companies are generally exempt from VAT as intra-community deliveries, according to § 6a of the German VAT Act (UStG). This tax exemption applies to the supply of goods and services between EU member states, as long as certain conditions are met. One key requirement is that the delivering company must provide evidence of the transaction's eligibility for exemption. Specifically, the company must verify and record the buyer's foreign VAT identification number (VAT-ID), which must be valid at the time the invoice is issued. If this proof is not provided or the VAT-ID is not valid, the delivery of goods or the invoice cannot be treated as tax-exempt.

In addition to these rules, German companies must ensure that the goods are physically transported from Germany to another EU member state. The supplier must keep documentation proving the shipment, such as transport or shipping documents, in order to maintain the VAT exemption status. If these conditions are not fulfilled, the German tax authorities may retroactively charge VAT on the transaction.

EU-Wide Application

This legal framework is not unique to Germany but is consistent with the principles outlined in the EU VAT Directive, which governs the VAT system across the European Union. The VAT Directive provides the foundation for intra-community supplies, stating that VAT exemptions for goods and services delivered between EU member states are available under certain conditions. These conditions are broadly similar across EU countries, though the exact implementation may vary slightly depending on national VAT laws. In most EU member states, the tax exemption for intra-community supplies of goods also depends on verifying the buyer’s valid VAT-ID and ensuring that the goods are transported out of the seller’s country and into another EU country. If these requirements are not met, the seller may be held liable for the VAT that should have been charged. Therefore, businesses in every EU member state must ensure they properly verify the VAT-ID of their EU-based customers and maintain adequate documentation of the transport and transaction. Businesses face significant challenges in verifying the VAT status and bank account details of their partners across different countries. Inaccurate or fraudulent information can lead to severe financial and legal repercussions, including the inability to reclaim VAT or being held liable for a partner’s unpaid VAT.

On September 1, 2019, the Polish tax authorities introduced the so-called "White List of Taxpayers," an electronic registry containing detailed information about VAT taxpayers in Poland. This list also includes companies based abroad that are liable for VAT in Poland. In addition to registered VAT IDs and address details, the list displays the bank account numbers provided during the company's registration or VAT registration process. As of January 1, 2020, taxpayers making payments for transactions exceeding 15,000 PLN or its equivalent must transfer the funds to the bank account listed on the White List for their business partner. Failure to comply with this requirement makes the payer jointly liable for any unpaid VAT debts of their business partner.

Following the amendment to the Czech VAT Act, the Czech finance administration has introduced a new system involving "unreliable taxpayers" and "reliable bank accounts." VAT payers who have breached VAT regulations will be classified as unreliable, and customers purchasing from these unreliable VAT payers will be held responsible for any unpaid VAT on those transactions. This system is a measure aimed at combating VAT evasion and fraud.

Strict Compliance Requirements

Due to the strict handling of VAT regulations by tax authorities throughout the EU, businesses are strongly advised to conduct careful due diligence when making any intra-community supplies. This includes regularly verifying the VAT-IDs of their trade partners for every chargeable service or delivery within the EU, as even minor errors in compliance can lead to significant financial liabilities, such as having to retroactively pay VAT, penalties, and interest. The European Commission provides an online VAT-ID verification service (VIES) that companies can use to check the validity of their customer’s VAT numbers.

The Quick Fixes for the EU value-added tax reform, effective since January 1, 2020, impose strict requirements on businesses to accurately record the EU VAT identification numbers of their customers. This compliance is essential for the tax exemption of intra-community supplies. Failure to record a valid EU VAT ID of the recipient can result in the intra-community supply becoming subject to tax, leading to significant financial implications.

Minimizing Liability Risk

To minimize liability risks, companies across the EU are encouraged to implement internal processes that ensure the verification of VAT-IDs and the retention of all relevant documentation (such as invoices, contracts, and proof of transportation). By doing so, companies can safeguard their transactions from VAT audits and reduce the risk of financial penalties that could arise from non-compliance with the VAT exemption rules for intra-community deliveries.

Impact

Non-compliance with these VAT requirements can result in severe penalties, additional tax liabilities, and increased administrative burdens. Businesses may face delays in invoicing and payment processing, which can disrupt cash flow and overall operational efficiency. Ensuring accurate and compliant VAT data is critical to maintaining smooth and cost-effective cross-border trade within the EU.

Step by Step Guides

Guide	Description
How Can I Verify a Slovenian VAT Number? A Step-by-Step Guide	Verifying a Slovenian VAT number ensures compliance with EU VAT regulations, preventing potential penalties and fraudulent transactions. The European Commission’s VAT Information Exchange System (VIES) is a free online tool that allows businesses to validate VAT numbers in real-time for any EU member state, including Slovenia. In addition to VIES, CDQ Tax Guard provides an easy-to-use solution for validating Slovenian VAT numbers. This tool allows businesses to verify that their partners' VAT details are correct, helping to avoid VAT-related errors and compliance issues.

EU VAT validation

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