Annual Tax Act 2020 (Part 12): Fine provisions according to Section 26a and Section 26b German VAT Act
VAT Newsletter 43/2020
According to the draft Annual Tax Act 2020, the previously relatively unknown fine provisions in the German VAT Act are to be strengthened. Due to the planned change, the tax authorities are likely to focus more on these regulations in the future. The changes are expected to come into force on 1 January 2021. However, companies would be well advised to already start reviewing their processes, especially their payment methods.
2 Purpose of the fine provisions in the German Value Added Tax Act
In essence, the amendment provided for in the Annual Tax Act 2020 is intended to make sec. 26b VAT Act more sanctionable. The provision was first implemented in the VAT Act on 1 January 2002 and has to be strictly separated from tax evasion according to sec. 370, 378 German Fiscal Code (AO). In contrast to tax evasion, in which the VAT is not assessed at all, only partially assessed or not assessed on time, the penalty element of sec. 26b VAT Act penalizes the non-payment or incomplete payment of VAT by its due date.
The current data analysis of the Institute for Economic Research of 7 January 2020 shows that the EU has a trade surplus of EUR 305 billion. If all imports and exports were recorded, this figure should actually be "zero". Since measurement errors alone cannot explain this systematic deviation, the cause appears to be massive VAT fraud - especially in the form of so-called VAT carousel fraud. This has an estimated impact of EUR 30 to 60 billion per year on EU Member States.
The revised fine provisions are intended to better sanction the non-payment, incomplete and untimely payment of VAT. On the one hand, the changes are intended to solve enforcement problems which, in addition to budget deficits, also lead to competition distortion. On the other hand, the amendments are intended to eliminate existing legal issues and the resulting difficulties in the practical implementation of the provision, in order to counteract more effectively, in particular, VAT carousel fraud.
3 Overview of amendments
The fine provision in sec. 26b of the VAT Act is repealed and inserted, in a modified form, in the fine provision in sec. 26a of the VAT Act. The current regulation content has resulted in some inaccuracies. The legislator is countering these in conjunction with the introduction of sec. 18, 18i, 18j and 18k VAT Act and with the deletion of the legal requirement "VAT stated on the invoice in terms of sec. 14". The latter is intended to eliminate the difficulties in the practical implementation of the regulation (e.g. evidential problems, disputes regarding the concept of an invoice, inclusion of VAT in terms of sec. 14c VAT Act).
The current version of sec. 26b VAT Act already pursues the objective that taxpayers not only submit VAT returns that comply with the legal formal requirements and are content wise correct, but also that they pay the tax debt declared. So far, there has been no legal standardization of the payment obligation, so that the provision of sec. 26b VAT Act was partially ineffective. However, a requirement for sanctioning is a payment obligation in accordance with administrative law. Amended sec. 18, 18i, 18j and 18k VAT Act take this into account by requiring payment of the VAT due.
The amount of fines currently regulated in sec. 26a para. 2 and sec. 26b para. 2 will be merged - with adjustments - in sec. 26a para. 3 of the VAT Act. According to these amendments, the intentional non-payment or incomplete payment of the assessed VAT on the due date can be punished with an administrative fine of up to EUR 30,000 - previously EUR 50,000.
4 Consequences of adaption and recommendation for action
The extension of the sanctioning system entails a considerable financial and organizational risk for all entrepreneurs. Even the intentional non-payment or incomplete payment of the assessed VAT by the due date is penalized, and this - in principle - from the very first infringement.
According to the explanatory memorandum to the Annual Tax Act, punishment presupposes intentional conduct (sec. 26b VAT Act in conjunction with sec. 377 AO, sec. 10 Act on Regulatory Offences [OwiG]). In order to invalidate such an accusation, the entrepreneur should take measures to ensure that he meets his payment obligation in due time. It should also be noted that, in addition to an administrative fine, there is also the possibility of setting a late-payment penalty and, furthermore, an organizational fault can be punished with a fine of up to EUR 1 million, in accordance with sec. 130 OwiG.
In order to avoid any disadvantages resulting from the planned changes, entrepreneurs should check whether the tax authorities have already been granted or can be granted a direct debit authorization. In addition, internal processes and work instructions should be adapted or implemented as part of a tax ICS (Tax Compliance Management System), in order to ensure timely payment of VAT. Due to the change in the law, the tax authorities are likely to focus more on these cases, which is why the corresponding structures should be reviewed or created already now.