This example shows how to create a domestic reverse charge purchase transaction.

A reverse charge is a transaction that supports an accounting/reporting entry for VAT when the supplier of a product/service doesn't charge the buyer VAT. Instead of being charged VAT by the supplier, the buyer receiving the product/service assesses the input VAT due on the purchase and generates a corresponding output VAT entry. The practical effect of this is that there's typically no net tax payable on the transaction.

A reverse charge is commonly required in the European Union (EU) to facilitate intra-EU cross-border, business-to-business trade without requiring the supplier to register in all EU Member States.

AvaTax will generate a reverse charge when the following criteria are met:

The transaction uses a purchase document type.

The transaction is a business to business transaction identified by the seller's VAT registration ID used in businessIdentificationNo field. (Note that the BIN must also include the two-digit ISO country code.)

The supplier did not charge VAT.

The destination address is in an EU country.

The goodsPlaceOrServiceRendered address is not the same country as the pointOfOrderAcceptance country.

A reverse charge calculates both input and output tax types. So for example, consider a transaction with a purchase of a €100.00 product by a buyer in Belgium. The product is standard rated. AvaTax calculates input VAT and output VAT at 19% as €19.00 each. Input VAT minus output VAT = €0 total tax.

Returned invoice messages

Reverse charge (Article 194 - Directive 2006/112 EC)

Related articles

The response returns the following articles when you run your transaction using "debugLevel": "Diagnostic":

Article 32

Article 194

Assumptions

In this example:

The document type is a purchase order.

The shipFrom, shipTo, and goodsPlaceOrServiceRendered addresses are in France.

The pointOfOrderAcceptance address is in Germany.

The customer (Avalara client) doesn't have permanent establishment (Nexus) in France.

Your supplier is established in the goodsPlaceOrServiceRendered country.

The seller is responsible for the transport of the physical goods.

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Domestic reverse charge purchase