EU VAT Quick Fixes 2020

1. June 2019 EU VAT Quick Fixes 2020

2. Agenda • Executive Summary of Changes • New requirements to apply VAT exemption of intra-community supplies • Mandatory customer VAT ID on invoice • Documentary proof of intra-Community supplies • Chain transactions within EU Appendix • List of Countries implemented local reverse-charge scheme (Art. 194 EU VAT directive) • Export chain transactions • Simplified treatment for call-off stock arrangements

3. EU VAT Quick Fixes 2020 – Executive Summary Summary • Part of the European Commission’s “Action Plan on VAT – Towards a single VAT area” • In force 1 January 2020 • The goal is to simplify international trade and combat fraud • Quick Fix 1: Mandatory VAT ID to apply the VAT exemption in country of departure • Quick fix 2: Documentary proof of intra-Community supplies • Quick fix 3: Uniform rules to simplify EU Chain transactions • Quick fix 4: Simplified treatment for call-off stock arrangements • Will require a cross-functional approach – Tax Function, GBS, SCM, Trade Compliance, Legal, Division/BU, IS • NOTE: All stated VAT risks – registration obligation, assessment of interest and penalties by tax authorities – will have impact to the EBIT of the affected Businesses!

4. EU VAT Quick Fixes 2020 – Executive Summary Customers valid EU VAT ID needed for 0%-rated EU supplies Customers EU VAT ID, from 1 Jan 2020 Possible Implications to Business VAT ID becomes material condition for VAT exemption in EU cross-border supplies The supplier must document and verify the customer’s VAT ID and makes it a substantive condition for the VAT exemption of intra-EU supplies Customer VAT ID has to be checked qualified before supply starts The lack of a valid VAT ID of the customer at the time of the intra-EU supply will therefore result in the refusal of the VAT exemption Applicable to ALL in EU VAT registered legal entities performing VAT exempt intra-community supplies Implications: • ERP environment (Customer Master Data, Order handling and SCM Processes, Invoicing) – Business, IS • Training for Sales and procurement departments – Business, Tax • Standardized Validation process for customers VAT-ID – Business, GBS, IS Invalid Customer´s VAT ID at time of intra-community supply denies VAT exemption and causes risk on assessment of penalties and interests!

5. EU VAT Quick Fixes 2020 – Executive Summary Proof of transportation for 0%-rated EU supplies Proof of transportation, from 1 Jan 2020 Possible Implications to Business Harmonized rules for the documentation proving that the goods have left the ship-from and arrived in the ship-to country’s territory Increased documentation requirements in cases where goods are picked-up by customer Applicable to ALL in EU VAT registered legal entities performing VAT exempt intra-community supplies Implications: • Training for Sales department – Business, Tax • Contracts with Customers (O2C) - Business • Standardized archive processes – Business, GBS, IS Implementation of SOX-Controls to proof, proper documentation has been collected and archived Deficient documentation of VAT exempt intra-community supply denies VAT exemption and causes risk on assessment of penalties and interests!

6. EU VAT Quick Fixes 2020 – Executive Summary VAT assessment of EU Chain Transactions Assessment of Chain Transactions, from 1 Jan 2020 Possible Implications to Business Applicable to ALL in EU VAT registered legal entities performing cross-boarder supplies of goods in Europe Implications: • Training for Sales and procurement departments – Business, Tax • ERP environment (Customer Master Data, Order handling and SCM Processes, Invoicing) – Business, IS • Standardized Validation process for customers VAT-ID – Business, GBS, IS Development of new ITX Data Analytics reports to analyze critical transactions from a VAT perspective - Business, GBS, IS, Tax • Chain Transactions (CT) is characterized by facts: • The same goods are supplied successively and • those goods are transported from one MS to another MS directly from the first supplier to the last customer in the chain • the cross border movement of the goods should be assigned only to one supply in the chain and this supply can be treated as VAT exempt EU sale (same principle as today) • the exempt EU supply takes place in the link in which the goods are supplied to the taxable person that arranges the intra-Community transport or has this arranged • VAT risk mainly for ABB entity (e.g. ABB Local Sales Unit) act as reseller in the middle of the chain transaction – needs to be VAT registered in country of dispatch or arrival • VAT treatment of all transactions within chain must be consistent Several business models will cause VAT registration obligation and additional costs for business and must be avoided!

7. EU VAT Quick Fixes 2020 – Executive Summary Call-off stocks Call-off stock, from 1 Jan 2020 Possible Implications to Business The transfer of own goods will no longer be deemed as EU supply/acquisition, if certain conditions are met When the customer calls-off the goods, an EU sale from the supplier to the customer is triggered Relates only to transfer of goods between 2 different EU member states Analysis of existing agreements (Link to questionnaire as support) - Business Implications: • Contracts with Suppliers (P2P) or Customers (O2C) - Business • ERP environment (Self-billing process P2P) – Business, IS • Closing of VAT registrations – Business, GBS, Tax, IS VAT invoiced by supplier in case of applicable VAT exemption can cause risk for factory in non-deductibility of input VAT

8. EU VAT Quick Fixes 2020 – Executive Summary Project Organisation Project Team Overall Timeline Appointment of Business Project Partner on Global and Local Level – 21.06.2019 Providing of Trainings (MyLearning platform) – June to September 2019 Development of Standard ITX Data Analytics Reports – End of 2019 Implementation of SOX-Controls – End of 2019

9. Agenda • Executive Summary of Changes • New requirements to apply VAT exemption of intra-community supplies • Mandatory customer VAT ID on invoice • Documentary proof of intra-Community supplies • Chain transactions within EU Appendix • List of Countries implemented local reverse-charge scheme (Art. 194 EU VAT directive) • Export chain transactions • Simplified treatment for call-off stock arrangements

10. EU VAT Quick Fixes Intra-Community Supplies – Definition and legal requirements Description VAT Treatment Place of Taxation in country where transport starts (EU1) Transport ends in another EU member state (EU2) – intra-community supply Intra-community supply is exempt from VAT in EU1 under certain requirements New legal requirements from 2020 for VAT exemption in country where transport starts!

11. EU VAT Quick Fixes Intra-Community Supplies – Definition and legal requirements Description Legal Requirement for VAT exemption Customer is entrepreneur for VAT purposes. Direct transport under responsibility by ABB or customer from EU1 to EU2 – only discontinuity for logistic reasons are permitted. Acquisition in EU2 is taxable – intra-community acquisition by customer. NEW: Validity of customer VAT ID have to be documented by ABB before transport starts. NEW: Customer VAT ID have to be printed on commercial invoice. NEW: Supply have to be declared in EC sales list NEW: Stricter documentation of proof of arrival in EU2 New legal requirements from 2020 for VAT exemption in country where transport starts!

12. EU VAT Quick Fixes 2020 Customers valid EU VAT ID needed for 0%-rated EU supplies Customers EU VAT ID, from 1 Jan 2020 Possible Implications to Business VAT ID becomes material condition for VAT exemption in EU cross-border supplies The supplier must document and verify the customer’s VAT ID and makes it a substantive condition for the VAT exemption of intra-EU supplies Customer VAT ID has to be checked qualified before supply starts The lack of a valid VAT ID of the customer at the time of the intra-EU supply will therefore result in the refusal of the VAT exemption Applicable to ALL in EU VAT registered legal entities performing VAT exempt intra-community supplies Business Organization is responsible to collect valid VAT ID from customer If validation of VAT ID fails, Business Organization is obliged to correct commercial invoice with local VAT Implications: • ERP environment (Customer Master Data, Order handling and SCM Processes, Invoicing) – Business, IS • Training for Sales and procurement departments – Business, Tax • Standardized Validation process for customers VAT-ID – Business, GBS, IS Invalid Customer´s VAT ID at time of intra-community supply denies VAT exemption and causes risk on assessment of penalties and interests!

13. EU VAT Quick Fixes 2020 Proof of transportation for 0%-rated EU supplies • General remarks • Harmonized rules for the documentation proving that the goods have left the ship-from and arrived in the ship-to country’s territory established in COUNCIL IMPLEMENTING REGULATION (EU) No 282/2011 – Direct application in all EU member states without adjustment of local VAT rules • New regulation as disputable presumption – local tax authority can implement or already have implemented different - more uncomplex - requirements to proof arrival of goods in another EU member state (e.g. Germany – “Entry certificate”) • Current rules can be still applicable • Non-exhausting listing of sufficient documents • Documentation depend on responsibility of transport and means of transport • Supplier has to fulfill local requirements only in country of departure of the goods • Supplier must be able to provide documents as requested by tax authority shortly • Archived documents must be linked to commercial invoice for VAT exempt intra-community supply • Business Organization must implement proper documentation and archive processes.

14. EU VAT Quick Fixes 2020 Proof of transportation for 0%-rated EU supplies • Experiences so far • Currently EU member states published draft of new local regulation. • Some countries are planning to implement the European rules as local rules (especially in eastern Europe). • Project Team will provide detailed list of local requirements later (ABB will join study in Germany about requirements in all EU member states).

15. EU VAT Quick Fixes 2020 Proof of transportation for 0%-rated EU supplies Responsibility for transport with supplier Responsibility for transport with purchaser In general, the presumption rule requires that the supplier has possession of at least two documents (documents relating to the dispatch or transport of the goods, such as a signed CMR document or note, a bill of lading, an airfreight invoice or an invoice from the carrier of the goods) and that these documents do not contradict each other, in terms of content. The supplier can provide non-contradictory proof of the transport of the goods by means of e.g. a signed CMR bill of lading and a freight invoice. These two documents are required to be issued by two different third parties who are independent of both the supplier and the purchaser. Alternatively, the supplier can provide the necessary evidence using one of the aforementioned documents together with one of the following: An insurance policy for the transport of goods bank documents showing payment of transport costs confirmation of receipt of goods in the Member State of destination by a public authority (e.g. notary) confirmation, provided by a warehouse keeper in the Member State of destination, that the delivered items are in storage. If the purchaser arranges for the transport of goods (pick-up case), the supplier additionally requires a written declaration from the purchaser that he has arranged for transport. The declaration must contain certain information, e.g. date and place of arrival of the goods, it must also identify the person receiving the goods on behalf of the purchaser. It is thus very similar to the entry certificate currently required in Germany.

16. Agenda • Executive Summary of Changes • New requirements to apply VAT exemption of intra-community supplies • Mandatory customer VAT ID on invoice • Documentary proof of intra-Community supplies • Chain transactions within EU Appendix • List of Countries implemented local reverse-charge scheme (Art. 194 EU VAT directive) • Export chain transactions • Simplified treatment for call-off stock arrangements

17. EU VAT Quick Fixes Definition of Chain Transactions Invoice 1 Invoice 2 Purchase Order 2 ABB Sales Unit Factory Purchase Order 1 Customer

18. EU VAT Quick Fixes VAT assessment of EU Chain Transactions Assessment of Chain Transactions, current Assessment of Chain Transactions, from 1 Jan 2020 the cross border movement of the goods should be assigned only to one supply in the chain and this supply can be treated as VAT exempt EU sale (same principle as today) the exempt EU supply takes place in the link in which the goods are supplied to the taxable person that arranges the intra-community transport or has this arranged In practice this means that if Supplier or Sales Unit arranges the transport or has it arranged, the exempt supply is the one between Supplier to Sales Unit If Sales Unit provides Supplier with valid VAT ID in the country of dispatch (Supplier´s country) and Sales Unit or Customer arranges the transport or has it arranged, the exempt supply is the one between Sales Unit to Customer. The sale between Supplier – Sales Unit is then treated as Supplier local supply in A’s country No written guidance in VAT Directive, VAT treatment is based ECJ case law  the cross border movement of the goods should be assigned only to one supply in the chain and this supply can be treated as VAT exempt EU sale the other supplies in the chain must be treated as domestic supplies, subject to VAT either in the member state of dispatch or arrival Still uncertainty and Supplier lack of harmonization as to which supply the movement of the goods should be allocated to in case the middle man is managing the transportation. • Chain Transactions (CT) is characterized by facts: • The same goods are supplied successively and • those goods are transported from one MS to another MS directly from the first supplier to the last customer in the chain

19. EU VAT Quick Fixes 2020 VAT assessment of EU Chain Transactions • General remarks • In practice, INCOTERM will become importance to assess responsibility for transport, especially for Tax Auditors. • To implement fully automated tax coding processes in ERP, INCOTERM are the only value to assess responsibility for transport automatically. • INCOTERM are simplified agreements of trade conditions and – if part of the commercial contract – binding for the contractual partner. • In general, the responsibility for transport is with: • Customer: INCOTERM (2010) EXW, FCA, FAS, FOB • Supplier: INCOTERM (2010) CPT, CIP, DAT, DAP, DDP, CFR, CIF

20. EU VAT Quick Fixes Business Models – ABB Sales Units Model 1.1: Domestic Chain Description ABB Sales Unit is established or VAT registered in respective country Non-Cross-Boarder-Transport Not relevant, which party is responsible for transport Recipient could be different from Customer – 4-Party-Chain VAT Treatment (ABB Sales Unit) Domestic supply Local VAT rules are applicable NO Changes with effect from 2020 – no VAT risks for ABB Sales Unit

21. EU VAT Quick Fixes Business Models – ABB Sales Units Model 1.2: Domestic Chain Description ABB Sales Unit is NOT established or VAT registered in respective country Non-Cross-Boarder-Transport Not relevant, which party is responsible for transport Recipient could be different from Customer – 4-Party-Chain VAT Treatment (ABB Sales Unit) Domestic supply Local VAT rules are applicable ABB Sales Unit is obliged to register for VAT in respective country unless country has implemented local reverse-charge for domestic sale (art. 194 EU VAT directive) – s. appendix 1 slide 53f NO Changes with effect from 2020 – Registration Obligation for ABB Sales Unit

22. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.1: EU Chain Description ABB Sales Unit is established in EU2 Supplier is responsible for transport to recipient Recipient could be different from Customer – 4-Party-Chain VAT Treatment (ABB Sales Unit) VAT-able IC acquisition in EU2 Local supply in EU 2 - Local VAT rules are applicable NO Changes with effect from 2020 – no VAT risks for ABB Sales Unit

23. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.2: EU Chain Description ABB Sales Unit is NOT established or VAT registered in EU1 Customer is responsible for transport from supplier Recipient could be different from Customer – 4-Party-Chain VAT Treatment (ABB Sales Unit) IC sales is assigned to sale from ABB Sales Unit to Customer ABB Sales Unit is obliged to register in EU1 Supplier is obliged to invoice with applicable VAT in EU1 Definitive treatment with effect from 2020 – VAT risk for ABB Sales Unit – MUST BE AVOIDED!

24. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.2: EU Chain Alternatives Supplier is responsible for transport (s. Model 2.1) ABB Sales Unit is responsible for transport (s. Model 2.3) Split of transport from Supplier to ABB Sales Unit and subsequently from ABB Sales Unit to Customer Definitive treatment with effect from 2020 – VAT risk for ABB Sales Unit – MUST BE AVOIDED!

25. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.3: EU Chain Description ABB Sales Unit is established in EU2 ABB Sales Unit is responsible for transport to recipient Recipient could be different from Customer – 4-Party-Chain VAT Treatment (ABB Sales Unit) Determination of IC sale on usage of VAT ID To avoid certain financial risks in EU1: ABB Sales unit use own VAT ID of country EU2 to perform IC acquisition in EU 2 and subsequent local supply to customer (s. Model 2.1) Definitive treatment with effect from 2020 – Usage own VAT ID in EU2 is mandatory!

26. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.4: EU Chain Description ABB Sales Unit is NOT VAT registered in EU2 Supplier is responsible for transport to Recipient in EU2 Recipient could be different from Customer – 4-Party-Chain VAT Treatment (ABB Sales Unit) IC sales is assigned to sale from Supplier to ABB Sales Unit ABB Sales Unit is obliged to register in EU2 ABB Sales Unit is obliged to invoice with applicable VAT in EU2 Definitive treatment with effect from 2020 – VAT risk for ABB Sales Unit – MUST BE AVOIDED!

27. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.4: EU Chain Alternatives ABB Sales Unit or Customer/Recipient is responsible for Transport (s. Model 2.5) Split of transport from Supplier to ABB Sales Unit and subsequently from ABB Sales Unit to Customer Definitive treatment with effect from 2020 – VAT risk for ABB Sales Unit – MUST BE AVOIDED!

28. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.5.1: EU Chain Description ABB Sales Unit is established in EU1 Customer is responsible for transport from Supplier VAT Treatment (ABB Sales Unit) VAT-able but exempt IC sale in EU1 Local purchase in EU1 from supplier - Local VAT rules are applicable NO Changes with effect from 2020 – no VAT risks for ABB Sales Unit

29. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.5.2: EU Chain Description ABB Sales Unit is established in EU1 Customer is responsible for transport from Supplier to Recipient VAT Treatment (ABB Sales Unit) VAT-able but exempt IC sale in EU1, if ABB Sales Unit, get written proof of responsibility of transport by Customer (s. slide 15) Local purchase in EU1 from supplier - Local VAT rules are applicable NO Changes with effect from 2020 – no VAT risks for ABB Sales Unit

30. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.5.3: EU Chain Description ABB Sales Unit is established in EU1 Recipient is responsible for transport from Supplier to Recipient VAT Treatment (ABB Sales Unit) Local purchase in EU1 from supplier - Local VAT rules are applicable Local sale from ABB Sales Unit to Customer - Local VAT rules are applicable, in general ABB Sales Unit is obliged to invoice with local VAT in EU1 NO Changes with effect from 2020 – no VAT risks for ABB Sales Unit

31. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.6: EU Chain Description ABB Sales Unit is established in EU1 ABB Sales Unit is responsible for transport from Supplier to customer Recipient could be different from Customer – 4-Party-Chain VAT Treatment (ABB Sales Unit) As ABB Sales Unit uses own VAT ID in EU1 (standard process within ERP), sale to customer is treated as VAT-able but exempt IC sale in EU1 Local purchase in EU1 from supplier - Local VAT rules are applicable Definitive treatment with effect from 2020 – NO VAT risk for ABB Sales Unit

32. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.7.1: EU Chain Description Supplier is established in EU1, ABB Sales Unit is established in EU2, Customer is established in EU3 Customer is Recipient of the Goods – “3 Party Chain” Supplier is responsible for transport to Recipient VAT Treatment (ABB Sales Unit) IC triangulation simplification scheme is applicable Invoicing to Customer needs advanced tax coding in ERP or manual adjustment to ensure proper invoice and VAT return. NO Changes with effect from 2020 – no VAT risks for ABB Sales Unit

33. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.7.2: EU Chain Description Supplier is established in EU1, ABB Sales Unit is established in EU2, Customer is established in EU2 and Goods are delivered directly to EU3 Supplier is responsible for transport to Recipient VAT Treatment (ABB Sales Unit) IC triangulation simplification scheme is NOT applicable ABB Sales Unit is obliged to be VAT registered in EU3 Definitive treatment with effect from 2020 – VAT risk for ABB Sales Unit – MUST BE AVOIDED!

34. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.7.2: EU Chain Alternative ABB Sales Unit is already registered for VAT in EU3 ABB Sales Unit uses own VAT ID in EU 3 for purchase from Supplier and Sale to Customer Split of transport from Supplier to ABB Sales Unit and subsequently from ABB Sales Unit to Recipient Customer is already VAT registered in EU3 and use own VAT ID of EU3 – IC triangulation scheme is applicable in accordance to EU VAT Committee’s Working Paper No. 968 of 15 May 2019 (preliminary ruling) Invoicing to Customer needs advanced tax coding in ERP or manual adjustment to ensure proper invoice and VAT return. Definitive treatment with effect from 2020 – VAT risk for ABB Sales Unit – MUST BE AVOIDED!

35. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.8.1: EU Chain Description Supplier is established in EU1, ABB Sales Unit is established in EU2, Customer is established in EU3 Customer is Recipient of the Goods – “3 Party Chain” ABB Sales Unit is responsible for transport to Recipient VAT Treatment (ABB Sales Unit) IC triangulation simplification scheme is applicable Invoicing to Customer needs advanced tax coding in ERP or manual adjustment to ensure proper invoice and VAT return. NO Changes with effect from 2020 – no VAT risks for ABB Sales Unit

36. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.8.2: EU Chain Description Supplier is established in EU1, ABB Sales Unit is established in EU2, Customer is established in EU2 and Goods are delivered directly to EU3 ABB Sales Unit is responsible for transport to Recipient VAT Treatment (ABB Sales Unit) IC triangulation simplification scheme is NOT applicable ABB Sales Unit is obliged to be VAT registered in EU1 or EU3 Definitive treatment with effect from 2020 – VAT risk for ABB Sales Unit – MUST BE AVOIDED!

37. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.8.2: EU Chain Alternative ABB Sales Unit is already registered for VAT in EU1 ABB Sales Unit uses own VAT ID in EU 1 for purchase from Supplier and Sale to Customer ABB Sales Unit is already registered for VAT in EU3 ABB Sales Unit uses own VAT ID in EU 3 for purchase from Supplier and Sale to Customer Split of transport from Supplier to ABB Sales Unit and subsequently from ABB Sales Unit to Recipient Definitive treatment with effect from 2020 – VAT risk for ABB Sales Unit – MUST BE AVOIDED!

38. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.8.2: EU Chain Alternative Customer is already VAT registered in EU3 and use own VAT ID of EU3 – IC triangulation scheme is applicable in accordance to EU VAT Committee’s Working Paper No. 968 of 15 May 2019 (preliminary ruling) Invoicing to Customer needs advanced tax coding in ERP or manual adjustment to ensure proper invoice and VAT return. Definitive treatment with effect from 2020 – VAT risk for ABB Sales Unit – MUST BE AVOIDED!

39. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.9: EU Chain Description Supplier is established in EU1, ABB Sales Unit is established in EU2, Customer is established in EU3 Customer is Recipient of the Goods – “3 Party Chain” Customer is responsible for transport to Recipient Recipient could be different from Customer – 4-Party-Chain VAT Treatment (ABB Sales Unit) IC triangulation simplification scheme is NOT applicable ABB Sales Unit is obliged to be VAT registered in EU1 Definitive treatment with effect from 2020 – VAT risk for ABB Sales Unit – MUST BE AVOIDED!

40. EU VAT Quick Fixes Business Models – ABB Sales Units Model 2.9: EU Chain Alternatives Supplier is responsible for transport (s. Model 2.7) ABB Sales Unit is responsible for transport (s. Model 2.8) Split of transport from Supplier to ABB Sales Unit and subsequently from ABB Sales Unit to Customer Definitive treatment with effect from 2020 – VAT risk for ABB Sales Unit – MUST BE AVOIDED!

41. EU VAT Quick Fixes Business Models – ABB Feeder Factories VAT Treatment Processing In case, goods are shipped from ABB Feeder Factory, treatment of sale from a VAT perspective have to assess in country of start of transport. VAT treatment depends on: Obligation of transport Used VAT ID of customer ABB Feeder Factory is only able to invoice as VAT exempt intra-community supply, all legal requirements stated on slide 11 are confirmed! As Customer/ABB Sales Unit can control the VAT treatment of the chain in certain cases by using Supplier different VAT ID (different then country of establishment). ABB Feeder Factory must be able to operate with it, especially within ERP system: Determination of VAT ID in PO from ABB Sales Unit (e.g. eOrder via EDI) Invoicing to correct VAT ID of Customer/ABB Sales Unit EC Sales List with correct VAT ID

42. EU VAT Quick Fixes Export Business Models • Changes of EU VAT Directive have to be implemented in local VAT law by every EU member state • In case, the general treatment of chain transactions will be implemented locally not exclusively to EU chain transaction, new rules may have impact to chain transactions with deliveries from EU member state to countries outside EU. • VAT treatment of export chain transaction can be different to customs treatment • Exporting party in accordance to art. 1 (19) UCC delegated act: exporter' means (a) the person established in the customs territory of the Union who, at the time when the declaration is accepted, holds the contract with the consignee in the third country and has the power for determining that the goods are to be brought to a destination outside the customs territory of the Union, (b) the private individual carrying the goods to be exported where these goods are contained in the private individual’s personal baggage, (c) in other cases, the person established in the customs territory of the Union who has the power for determining that the goods are to be brought to a destination outside the customs territory of the Union. • Exporting party for customs purposes can be obliged to invoice with VAT!

43. EU VAT Quick Fixes Export Business Models – ABB Feeder Factory/Sales Unit Model 4.1: Export Chain from EU to exEU Description ABB Sales Unit is established outside EU ABB Feeder Factory is responsible for transport to Customer/Recipient Recipient could be different from Customer – 4-Party-Chain VAT Treatment (ABB Feeder Factory) VAT-able but exempt export sale in EU1 No VAT risk for ABB Sales Unit within EU NO Changes with effect from 2020 – no VAT risks for ABB Sales Unit

44. EU VAT Quick Fixes Export Business Models – ABB Feeder Factory/Sales Unit Model 4.2 Export Chain from EU to exEU Description ABB Sales Unit is established outside EU ABB Sales Unit is responsible for transport to Customer/Recipient Recipient could be different from Customer – 4-Party-Chain VAT Treatment (ABB Feeder Factory) VAT-able but exempt export sale in EU1 ABB Feeder Factory needs proof of transport obligation from ABB Sales Unit. No VAT risk for ABB Sales Unit within EU NO Changes with effect from 2020 – no VAT risks for ABB Sales Unit

45. EU VAT Quick Fixes Export Business Models – ABB Feeder Factory/Sales Unit Model 4.3 Export Chain from EU to exEU Description ABB Sales Unit is established outside EU Customer is responsible for transport Recipient could be different from Customer – 4-Party-Chain VAT Treatment (ABB Feeder Factory) ABB Feeder Factory is obliged to invoice with local VAT in EU1 ABB Sales Unit is obliged to register for VAT in EU1 Input VAT isn´t claimable for ABB Sales Unit in EU1 without VAT registration ABB Sales Unit is obliged to register for VAT in EU country of pick-up!

46. EU VAT Quick Fixes Export Business Models – ABB Feeder Factory/Sales Unit Model 4.3 Export Chain from EU to exEU Alternatives ABB Feeder Factory must be responsible for transport outside EU, e.g.: INCOTERM FOB Harbor EU1 Export in Free Trade Zone (FTZ) in Country of Departure and subsequent pick-up by Customer in FTZ ABB Sales Unit is obliged to register for VAT in EU country of pick-up!

47. Agenda • Executive Summary of Changes • New requirements to apply VAT exemption of intra-community supplies • Mandatory customer VAT ID on invoice • Documentary proof of intra-Community supplies • Chain transactions within EU Appendix • List of Countries implemented local reverse-charge scheme (Art. 194 EU VAT directive) • Export chain transactions • Simplified treatment for call-off stock arrangements

48. EU VAT Quick Fixes 2020 Call-off stocks Call-off stock, from 1 Jan 2020 The transfer of own goods will no longer be deemed as EU supply/acquisition, if certain conditions are met When the customer calls-off the goods, an EU sale (intra-community supply) from the supplier to the customer is triggered Relates only to transfer of goods between 2 different EU member states All legal requirements for VAT exemption of intra-community supply have to be fulfilled by supplier

49. EU VAT Quick Fixes 2020 Call-off stocks Definition of Call-off stock There is no legal definition as to what is meant by “consignment stock”. The newly included Art. 17a of the EU-VAT-Directive defines, for the first time, to which transactions the simplification rule is applicable. Thus, it is irrelevant whether one speaks of a consignment stock or e.g. a call-off stock, a vendor managed inventory or other warehouse constellations. The only thing that matters is whether the goods are transported to another EU Member State in order to be supplied, at a later date subsequent to arrival, to a recipient who is entitled to take title to the goods.

50. EU VAT Quick Fixes 2020 Call-off stocks Legal requirements to apply for simplification scheme Supplier is not established in ship-to country VAT ID of purchaser is known and valid at the start of transport Supplier records transfer of goods in consignment register Supplier reports transfer of goods in EC sales list Supply is carried out within 12 month of arrival Supply only to predetermined purchaser Goods not supplied are transferred back to original departure country (within 12 month period) Goods do not disappear (destruction, loss, robbery) If ONE of the legal requirements isn´t confirmed, simplification scheme isn´t applicable! ABB Feeder Factory is obliged to register for VAT in country of operating the stock! Local VAT is applicable! Risk of interest and penalties in case of subsequent challenge by local tax authorities!