EU: Triangulation simplification applies beyond three parties in EU VAT supply chains

The European General Court (EGC), which is now in charge of most EU value added tax (VAT) cases, on December 3, 2025, published its decision in Case T-646/24, regarding whether the EU VAT triangulation simplification for intra-EU drop shipments also applies if more than three parties are involved.

Background

According to Article 40 of the EU VAT Directive, an intra-EU acquisition is performed in the EU member state of destination of the goods (Ship-To). Article 41 sets a fallback rule: If a taxpayer cannot show that VAT was applied in the destination member state, authorities treat the intra‑EU acquisition as taxed in the member state that issued the VAT ID, with a later reduction if the destination country also applies VAT. This article does not apply pursuant to Article 42 if the transaction qualifies as a triangular transaction under Article 141.

Under the triangulation simplification, a member state must relieve VAT on an intra-EU acquisition when (a) an intermediary that is not established there (but has a VAT ID in another Member State) buys goods to (b) resell in that member State, (c) the goods move directly from a different member state to the intermediary’s customer in that member state, (d) that customer holds a valid VAT ID there, and (e) that customer is designated to self-account for the VAT under the reverse charge.

Facts

A Slovenian company (SI Taxpayer) registered for VAT bought products from German sellers (DE Seller) in 2015–2016 and resold them to three Danish VAT-registered customers (DK 1), organizing and paying for direct transport from Germany to Denmark and issuing “Reverse charge” invoices. The SI taxpayer claimed the EU “triangular transaction” simplification, so it did not register in Denmark and reported the deals in Slovenia as non-taxable in Slovenia. The Slovenian tax authority learned from Denmark that DK 1 had no offices or warehouses, did not receive the goods, did not declare or pay VAT, and functioned as “missing traders.” In practice, other Danish companies (DK 2) collected the goods at Danish storage or mixing facilities. Therefore, the chain involved a DE Seller, SI Taxpayer, DK 1, and DK 2, with a single transport from DE Seller to DK 2. Because no VAT was paid in Denmark or Slovenia, Slovenia assessed VAT against SI Taxpayer, arguing the triangular simplification did not apply since the chain involved more than two sales during one transport and the goods were made available to the fourth operator, not the third operator who should have accounted for VAT on the intra-EU acquisition; Slovenia also refused any offset for VAT allegedly paid in Denmark, asserting SI Taxpayer knew it was participating in a fraudulent arrangement.

Questions before the General Court

• Does the triangular simplification still apply when a single transport ends with the goods being made available directly to the customer’s customer in the same country as the intermediate trader’s customer, rather than to that customer itself?
• When deciding if the triangular simplification applies, does it matter that the intermediate trader knew the goods would be resold onward?
• If the simplification does not apply, can the tax authority charge VAT in Slovenia (where the intermediate trader holds a VAT ID) under Article 41(1) and deny any reduction under Article 41(2) when the trader knew or should have known the transactions were part of VAT fraud?

EGC decision

First question

The EGC held that a triangular transaction can meet the condition laid down in the EU VAT Directive even when a single transport ends with the goods delivered to the customer’s customer (in the same member state as the customer), rather than to the customer itself. The court emphasized that a “sale of goods” under EU VAT law means transferring the right to dispose of the goods as owner and does not require physical possession or delivery to that specific party. The court also noted that consecutive sales can occur during one transport leg, and that the objectives of the triangular simplification—avoiding VAT registration for the intermediary in the destination country, ensuring the final customer accounts for the VAT, and preventing double taxation—do not depend on physical delivery to the intermediary’s customer. Accordingly, the court answered that Article 141(c) can be satisfied when transport goes directly to the customer’s customer.

Second question

As a logical next step to the answer of the first question, the EGC held that the fact that the operator benefiting from the simplification measure provided for in respect of triangular transactions is aware that the goods concerned are not physically transported to the person for whom the subsequent supply is carried out, but to the customer of that person, to whom that person resells the goods and who is identified for VAT purposes in the same member state as the reseller, has no bearing on the compliance with the condition for the application of the triangulation simplification.

Third question

The court ruled that under Articles 41 and 42 of the VAT Directive, the tax authorities and courts in the member state that issued the VAT ID used for the intra‑EU acquisition (e.g., Slovenia in this case) must treat that state as the place of taxation and must deny both the triangular transaction scheme in Articles 42 and 141 and the taxable amount reduction in Article 41(2) if the purchaser knew or should have known the transactions formed part of VAT fraud in the supply chain. The court emphasized that individuals cannot use EU law for abusive or fraudulent ends, that national authorities must refuse VAT rights (such as deductions, exemptions, or refunds) when claimed fraudulently or abusively, and that this refusal simply reflects that the objective conditions for those benefits were not met. The court added that denying these benefits in fraud situations does not violate proportionality, neutrality, legal certainty, or legitimate expectations.

KPMG observation

The EGC’s decision confirms that taxpayers acting as the intermediary in a drop-shipping arrangement can benefit from the simplification even when the chain involves more than three parties, if the single transport goes directly to the customer’s customer in the destination country. In this respect, the EGC’s decision is in line with the non-binding European Commission’s Explanatory Notes published in 2019 on the “2020 quick fixes,” in which the Commission discussed the application of the EU VAT drop-shipping rules in combination with the triangulation simplification. It should be noted, however, that current guidance of some Member State tax authorities limits the application of the triangulation simplification to three-party transactions and, while the EGC interpretation is binding for all tax authorities, it may take some time to be reflected in domestic guidance. Therefore, taxpayers wishing to implement this decision into their supply chain may need to carefully assess that they meet all the conditions for the triangulation simplification to apply and whether there may be any local challenges to the interpretation of the rules.

The decision further highlights a recurring theme throughout EU case law relating to cross-border sales of goods: taxpayers have a due diligence obligation to ensure that their counterparts (in this case, the immediate Danish customers) are not involved in VAT fraud. Taxpayers involved in transactions subject to VAT in the EU can no longer simply rely on obtaining a customer’s VAT identification number but must perform reasonable “Know Your Customer” checks. This could include VAT ID validation through the EU’s VAT Information Exchange System with screenshots, trade references, bank account verification (beneficiary matches contracting party), proof of business activity (e.g., premises, website, employees), and ongoing monitoring. Red flags that may require escalation or refusal could include uncommercial pricing, complex routing with no clear business rationale, requests to redirect goods last minute, repeated use of high‑risk traders, or failure to provide basic documentation.

For more information, contact a KPMG tax professional:

Philippe Stephanny | philippestephanny@kpmg.com