In a notification dated 3 May 2021, the Federal Ministry of Finance extended the applicability of the VAT exemption for the turnover of trading platforms for cryptocurrencies. From now on, in addition to centralised exchanges (CEX), decentralised exchanges (DEX) can also apply for the VAT exemption for financial services in accordance with Sec. 4 No. 8 German VAT Act. Fortunately, it has now been clarified that IT services related to the exempt supplies are also VAT-exempt. Those affected will be required to shortly adjust their accounting systems. However, VAT refunds for the past could also result. The notification is therefore important for all crypto trading platforms.
In its letter dated 20.04.2021, the Federal Ministry of Finance amends the VAT Circular with regard to the regulations on marketplace liability, which already came into force on 01.01.2019. On this occasion, it also comments on the adjustments made to secs 22f, 25e of the German VAT Act with effect from 01.07.2021. Regarding the recording obligations of online marketplaces, it is particularly relevant that the VAT-ID of the online trader replaces the frequently criticized tax registration certificate.
The ECJ ruled that – contrary to sec. 2.8 para 5a of the German VAT Circular and the opinion of the V. Senate of the Federal Fiscal Court – a partnership can constitute a controlled company of a VAT group even if not all shareholders are financially integrated into the controlling company. Compared to the previous national understanding, the ECJ thus extends the possibilities for a partnership to qualify as a controlled company. Until such time as the judgment is implemented by the German tax authorities, taxable persons should be able to choose which legal interpretation they wish to follow.
On 01.04.2021 the German Ministry of Finance published a letter of guidance on the new e-commerce rules. After having presented the highlights contained in the Ministry’s letter, from the perspective of a distance seller, in our last Newsletter, today we explain the changes with reference to online marketplaces. The German Ministry of Finance’s explanations, including the numerous sample cases provided, contain some important clarifications and should facilitate the correct application of the complex legal provisions on deemed chain transactions.
The fundamentally revised regulations on distance sales will come into force on 01.07.2021. In view of the ongoing pandemic, the question arose as to whether their entry into force would be postponed yet again. In the meantime, it is now certain that there will be no further postponement. The German Ministry of Finance published a letter of guidance on the new regulations on 01.04.2021. We will discuss the content of the letter in two newsletters. In this newsletter, we present the highlights contained in the Ministry’s letter, from the perspective of a distance seller. Our next newsletter will present the changes with reference to online marketplaces.
In its decision of 23 September 2020 (XI R 35/18), the Federal Fiscal Court held that financial allocations from shareholders to a joint subsidiary can constitute genuine (non-taxable) grants. The mere exercise of the shareholders’ general interests is not sufficient to assume a taxable supply. The Federal Fiscal Court has now clarified its previous restrictive jurisprudence based on recent ECJ judgments. It is also to be welcomed that the Federal Fiscal Court interprets the concept of competition within the meaning of Art. 132 lit. f) and I) of the EU VAT Directive in a restrictive manner.
The Federal Ministry of Finance has commented, in detail, on the question as to how in-kind donations to charitable institutions should be treated from a VAT perspective. The tax authorities intend to distinguish between items that are no longer marketable, items which have limited marketability, and marketable items, and want to determine the taxable amount accordingly. This approach may result in tax disputes. A better approach would have been to deny a taxable supply carried out free of charge in the first place.
German taxable persons are relaxed when it comes to deducting input VAT from intra-Community acquisitions and services. The German VAT Act does not impose any formal requirements for the deduction of the corresponding input VAT. This is often different in other EU Member States. Therefore, it is risky to transfer the German ‘understanding’ of such transactions to other EU countries. In the worst case, violations can result in the refusal of input VAT deduction. In its judgement of 18.03.2021 (Case C-895/19), the ECJ considered a Polish provision to infringe EU law. However, this amounted to only one mine in a rather extensive minefield.
In general, the allocation of costs between branches of one taxable person is not subject to VAT. However, there are exceptions to this rule. The ECJ previously established this in the case Skandia America and has now confirmed it. This judgment is interesting for all taxable persons having branches in other countries if at least one of these branches is part of a VAT group int the respective country. According to the ECJ, supplies between these branches can be taxable. This results in financial implications in cases where the recipient is not entitled to full input VAT deduction. All other taxable persons “merely” have to observe the correct legal consequences from a VAT perspective.
In principle, only the person who has the right to dispose of the imported goods when the customs declaration is filed may claim import VAT as input VAT. In 2019, the UK authorities HMRC startled companies and trade organiza-tions. Since this rule has not always been adhered to in the past, HMRC not only wanted to enforce the rule more strictly but (perhaps unintentionally?) tightened it significantly. Having retained its view in 2020 – despite a large number of submissions from the business community – HMRC is now taking a significant step backwards. However, the deduction of import VAT remains demanding. Taxable persons should act with due diligence.