For years, companies, associations and interest-group based networks have been demanding, in vain, that a solution be found for companies to deal with the liquidity burden resulting from imports into Germany. In the Second Corona Tax Aid Act of 29 June 2020, the legislator amended the regulations on the due date of import VAT (see KMLZ VAT Newsletter 21 I 2020). According to the Federal Ministry of Finance letter of 6 October 2020, the new regulation will apply as from 1 December 2020.
If taxable persons mistakenly apply the reverse charge scheme, the supplier is required to pay the VAT to the tax office, including any late assessment interest. The customer could previously only claim input VAT upon receipt of a proper invoice. Therefore, there was no interest on refunds. Although the German fiscal authorities affirmed a retroactive invoice supplement for cases of domestic reverse charge, they denied a retroactive effect for alleged intra-Community supplies of services (article 196 of the VAT Directive). A first instance Fiscal Court contradicts this restriction in two recent judgements.
The precondition for a non-taxable transfer of a going concern is the continuation of the business activity. If a letting activity is carried on after the transfer, the transfer is not taxable if the seller has previously operated a letting business with respect to the particular property. The Federal Ministry of Finance specifies that a rental business is to be assumed after only six months of rental activity. Furthermore, the Federal Ministry of Finance takes a position as to when these conditions are met in the case of chain transfers.
On 1 January 2020 the United Kingdom left the EU. During the current transitional period, the EU regulations still apply, in terms of VAT and customs law. As things currently stand, the transition period will expire on 31.12.2020. Distance sellers wishing to perform B2C supplies of goods to the United Kingdom from 01.01.2021 should now be making their respective preparations. Yet, which preparations are required exactly, is far from clear. However, despite the fact that it currently remains uncertain whether the United Kingdom will leave the EU with or without a deal, some information can already be substantiated. Our Newsletter sets out what can and should be done now.
In addition to practical difficulties in implementation, the temporary VAT rate reduction has raised a variety of questions of substantive law. The Federal Ministry of Finance already made mention of this issue in its letter of 30 June 2020. This said letter has now been supplemented by the newly published letter of 4 November 2020, which focuses primarily on the issues associated with the return to the "normal tax phase" on 1 January 2021. The regulations taken up are largely to be welcomed and provide some increased degree of legal certainty. Nevertheless, many issues of practical relevance still cannot be answered with legal certainty.
Taxable persons have always issued vouchers under a diverse range of purposes. They are used, for example, for the purpose of customer acquisition. They also have a pre-financing effect and are often not redeemed by the customer, despite payment. Since 01.01.2019, vouchers have been regulated by sec. 3 para. 13 to 15 German VAT Act. The Federal Ministry of Finance’s recent letter dated 02.11.2020 now sets out how, in the opinion of the tax authorities, the provisions should be interpreted. At least as of 01.01.2021, taxable persons should, if possible, structure their vouchers as multi-purpose vouchers.
The German Federal Ministry of Finance has published its long-awaited letter on the conditions for VAT exemption of intra-community supplies, which were tightened as of 01.01.2020. The Ministry has a very strict view regarding recapitulative statements. These must not only be submitted correctly and completely, but also on time. Corrections of any errors must also be made in due time and also in the appropriate period. Regarding the use of VAT ID numbers, the Ministry is much more liberal. There are no heavy demands placed on the proof of use and retroactive use is also possible. However, one thing seems to be inevitable: It must always be checked whether the customer's VAT ID number is valid at the time of delivery. Digital tools such as the KMLZ VAT-ID Verifier can offer support in this regard.
The ECJ has strengthened the right to deduct input VAT and thus the neutrality of VAT. Taxable persons who construct development facilities and later hand them over to the municipality, free of charge, are entitled to deduct input VAT. With its judgment of 16 September 2020 in the case Mitteldeutsche Hartstein-Industrie AG (C-528/19), the ECJ goes even further and states that taxation of a supply carried out free of charge can also be omitted.
The planned amendments to the regulation on marketplace liability in the Annual Tax Act 2020 are contrary to the purpose of the OSS procedure. Online traders will be required to submit a German VAT-ID to their online marketplace operator. Online traders from other EU countries must therefore register in Germany for VAT purposes. This is precisely what the new OSS procedure was intended to avoid.
Supplies in which the supplier transports goods to the customer and then installs them at the supplier’s premises are not subject to sec. 3 (4) of the German VAT Act. In other words, “assembly deliveries” are not “work deliveries”. The Federal Fiscal Court already decided the following in 2013: Only cases where goods not belonging to the supplier are processed can be qualified as work deliveries. The Federal Ministry of Finance is now incorporating this case law into the Administrative VAT Guidelines, thereby ensuring the long overdue clarification. The reverse charge scheme, according to sec. 13b of the German VAT Act, is thereby restricted. Foreign suppliers with projects in Germany will therefore have to check in future whether they are performing work deliveries or assembly deliveries. The latter will then lead to an obligation to register in Germany from 2021, at the latest, due to the fact that the reverse charge scheme does not apply.