The requirement of bookkeeping and documentary evidence for the zero-rating of export supplies of goods has been the subject of ongoing discussion in recent years. In its letter of 25 June 2020, the Federal Ministry of Finance declares that the decisions of the ECJ issued in this area in recent years are now to be applied. To this end, it is adapting the German administrative VAT guidelines accordingly. It is also taking this opportunity to make minor adjustments to the rules on the proof of export of goods carried in the personal luggage of travellers.
Is the provision concerning a VAT group, in accordance with sec. 2 para. 2 no. 2 of the German VAT Act, compatible with Union law - and if so, how far does the scope of the VAT group extend? The V. Senate of the Federal Fiscal Court has now taken the opportunity to refer these two questions to the ECJ (Ref. V R 40/19). Some people may experience a sense of déjà vu as regards the first question referred, as the XI. Senate of the Federal Fiscal Court recently referred this question to the ECJ itself (Ref. XI R 16/18). However, the V. Senate goes beyond the question referred by the XI. Senate, at least in terms of its second question. The outcome is not only important for the public sector, but also for non-profit institutions and for mixed holdings.
Many game apps offer the user the option of purchasing additional benefits in the form of so-called in-app purchases via the app store on his/her smartphone. In its recent decision, the Tax Court of Hamburg dealt with the VAT treatment of these in-app purchases. In particular, it concerned itself with the question of who, from a VAT perspective, is the supplier vis-à-vis the user, the app developer or the app store.
On 16 June 2020, the Federal Government presented the draft of the planned law on sanctions for associations. The core of the new legislation is the sanctioning of companies for offences committed in the course of their business activities. These also include tax evasion, insofar as it was committed for the benefit of the respective company. In contrast to the current legal situation, the criminal prosecution authority will conduct sanction proceedings against the company in addition to the criminal proceeding against the suspected persons. Even if the new regulation still leaves many questions unanswered, it is, nevertheless, to be welcomed that compliance measures taken by companies, as well as efforts to clarify legal violations will be taken into account in a mitigating manner. As a result, a functioning Tax Compliance Management System can thus significantly mitigate or even completely avert a sanction against a company.
The Federal Ministry of Finance has published an amended draft of an application letter on the VAT rate reduction. This now contains the non-objection regulation in the B2B sector demanded by businesses, albeit for a limited time, it does not equate to the sought after full “low-tax phase”. Although the Ministry confirms that the application of an incorrect (too high) VAT rate will result in unduly charged VAT, the input VAT deduction should still be granted, in full, "for reasons of practicability" and an invoice correction should not be necessary for supplies rendered in July 2020. This gives businesses one additional month for the implementation of necessary changes.
The issue of invoice correction with retroactive effect for the purposes of input VAT deduction has been an ongoing issue in recent years. In a recent decision, the Federal Fiscal Court has prompted this discussion to head off in a new direction. On the one hand, the Federal Fiscal Court held that the cancellation and reissue of an invoice could also have a retroactive effect. On the other hand, a retroactive correction of the invoice could also be made to the detriment of the recipient. The latter might retroactively lose his right to deduct input VAT.
One is happy, the other not so happy. However, the "Second Corona Tax Aid Act", including a reduction in VAT rates, is advancing in giant steps. In record time, a bill has been drafted that is now being rushed through the legislative process. Work is also already underway on the accompanying administrative circular. Postponement of the due date for import VAT might take a little longer. Our current newsletter provides you with an update on the developments.
Under what conditions is a holding company entitled to deduct input VAT? This is a recurring question. Last week, the Federal Fiscal Court published a decision in which an (interim) holding company passed on the costs of input services to its subsidiaries without a profit mark-up. In principle, this constitutes an entrepreneurial activity and thus entitles the holding company to deduct input VAT. However, caution is required to ensure that the holding company does not merely make (non-taxable) shareholder contributions to its subsidiaries.
The Federal Fiscal Court recently changed its case law on the taxation of supervisory board members in the case of fixed remuneration. Now, the Tax Court of Lower Saxony has handed down a decision on a case involving the chairman of a board of directors of a professional pension fund who received a variable form of remuneration. The tax court held that the Plaintiff's activities were outside the scope of VAT. The decision shows that, even in the case of variable remuneration, the activities of members of a collegial body may be outside the scope of VAT. The decision is of interest not only to members of boards of directors, but also to all members of collective bodies, such as members of supervisory boards or even management boards.
The grand coalition has agreed on an economic stimulus package to cushion the economic consequences of the Corona crisis. As part of this package, VAT rates are to be reduced from 19% to 16% and from 7% to 5% for six months from 1 July. In addition, the due date for import VAT is to be extended by 10 days. The VAT rate cut is perhaps primarily just an economic stimulus package for tax advisors. There may now be a purchase premium for everything and not just for cars. However, the administrative burden, especially the necessary changes in IT systems for this short period will, for most companies, be considerable. In times of “short-time work” (Kurzarbeit) and vacation season, the implementation will certainly also present itself as a significant challenge. It will also be interesting to observe whether the legislative procedure, an administrative circular that is to be hoped for and the change of forms and systems on the side of the administration, can be realised in the short amount of time available.