Find out how to handle transactions between three different European companies.

What is dropshipping?

Dropshipping is a three-party purchase, sale, or rental that involves a dropshipper, a customer, and a seller, also referred to as a middle party. The customer places an order with the seller, who gets the dropshipper, usually the manufacturer, to ship the ordered goods directly to the customer. This method allows the seller to sell goods without investing in inventory or handling goods.

In this scenario the following transactions take place:

• A purchase by the customer from the seller
• A purchase by the seller from the dropshipper
• A sale from the seller to the customer
• A sale from the supplier to the seller

What is triangulation simplification?

Dropshipments are commonly referred to as chain transactions in the European Union. Under the EU VAT Directive, certain transactions are subject to triangulation simplification. Triangulation simplification involves:

• Three parties
• Three EU member states
• Only one movement of goods

The purpose of triangulation simplification is to allow the seller, or middle party, who sells to the final customer and orders the goods from the dropshipper to avoid having to register for or collect VAT in the county where the goods are shipped to.

Note:

Different EU member states interpret the criteria for applying simplification differently, and the rules of the member state where the goods are delivered ultimately determine whether simplification can apply.