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.
The apportionment of input VAT deduction for mixed-use buildings has repeatedly been the subject of fiscal court proceedings. The German Federal Fiscal Court now states: The taxpayer is not bound to the proportion chosen if it transpires later that it is not appropriate. The taxpayer therefore has a de facto right of choice in these circumstances. The burden of proof as to whether the proportion according to the square footage is more accurate than the allocation according to the turnover lies with the tax office. In the case of significant differences in the equipment of mixed-use buildings, the input VAT is to be allocated according to the (object-related) proportion of the turnover.
Can input VAT deduction be achieved by means of a so-called upstream holding company? This question was referred to the ECJ by the XI. Senate of the Federal Fiscal Court with its decision of 23 September 2020 (XI R 22/18). The Federal Fiscal Court would answer in the negative as it recognises a link to the VAT exempt activities of the subsidiary. Further, it referred the question to the ECJ of whether an abusive structure is involved in such instances.
According to the German Federal Ministry of Finance, businesses not resident in the EU will no longer be able to apply the Tour Operator Margin Scheme as from the start of 2021. If non-EU businesses organise trips to Germany, this may now result in a German VAT liability. On the other hand, input VAT from related input services can now be claimed. Those companies impacted by the changes should now check to ascertain the extent to which they are affected and determine whether they should restructure their business processes in order to avoid the associated disadvantages or to benefit from the advantages.
The ECJ comments on the consideration for the provision of a company car and calls the German practice of company car taxation partially into question. The ECJ's decision is based on a special individual case in which the ECJ affirmed that the provision of a company car was free of charge. In comparable cases, taxable persons can refer directly to the ECJ ruling and may possibly benefit in cross-border situations.