Entrepreneurs are not obliged to pre-finance VAT over a period of years. The Federal Tax Court expressed its position regarding uncollectibility. Correction of VAT may potentially be taken into account whenever agreements regarding retentions are made on the basis of which entrepreneurs are not fully entitled to the payment of remuneration at the time of the supply is carried out (temporary uncollectibility).
According to a decision of the Federal Court of Justice, the right to deduct VAT arises at the time the taxable supply is carried out. As a consequence, the right to deduct VAT does not cease to apply retroactively if the taxable person purchases goods “in good faith“ and only afterwards realizes that these transactions were part of a VAT fraud carousel. There is also no obligation to correct the submitted VAT returns in this case. The Federal Court of Justice’s decision increases legal certainty for taxable persons and consultants (decision of the Federal Court of Justice of 1 October 2013, 1 StR 312/13, see also decision of the Federal Court of Justice of 5 February 2013, 1 StR 422/13).
The tax authorities follow the Federal Fiscal Court’s jurisdiction by means of a circular of the Federal Ministry of Finance. Significant VAT refunds incl. interest, for wrongly paid past VAT, are in store for property developers.
Due to the clear and direct assignment of the input transactions, furthermore, the circular of the Federal Ministry of Finance has far-reaching consequences: Companies may now become liable for VAT when purchasing construction work although they have, to date, not fallen within the scope of sec. 13b of the German VAT Act.
A taxable person is only entitled to an input VAT deduction with regard to goods and services purchased for business purposes. In its notification dated 2 January 2014, the Federal Ministry of Finance stipulates the general allocation principles to the business. In particular, with regard to construction work, the allocation to the business has to be executed by 31 May of the following year. Otherwise, there is a risk that the input VAT cannot be deducted.
As usual, the end of the year sees many countries amending their VAT laws. This newsletter addresses the most relevant changes within the EU. The predominant issue is no longer changes in VAT rates but rather the fight against loss of tax revenue. It is not surprising that the scope of the reverse charge scheme will be further extended. Entrepreneurs doing business in the countries concerned may have to amend their EDP systems for the tax finding processes and the new reporting requirements.
Calculating the deductible proportion of VAT for mixed-use buildings based on the ratio between the area of the premises allowing for VAT deduction and that of the premises not allowing for VAT deduction is compatible with EU law. This is the main thrust of a decision by the German Federal Tax Court. What is more interesting, however, are the further comments regarding input VAT deduction. The Federal Tax Court interprets the rule regarding the determination of the proportion of input VAT deduction in such a way that the allocation of input VAT according to economic criteria will only apply to those VAT amounts that are subject to adjustment of input VAT deduction as referred to in Art. 184 – 192 Directive 2006/112/EC.
With its decision of 21 August 2013, the German Federal Tax Court resubmitted to the ECJ the question of when an organization can be defined as “being devoted to social wellbeing”. This question is particularly relevant for the purpose of determining tax exemption for services which are provided in the context of care and nursing.
By judgment of 22 August 2013 (V R 37/10), the Federal Fiscal Court decided that the reverse-charge-scheme for construction work in relation to immovable property according to sec. 13b of the German VAT Act in principle is no longer applicable for supplies to property developers. However, the decision of the Federal Fiscal Court is not only of importance to property developers. It has put the tax authorities in their place as it has dismissed various regulations by the tax authorities due to the breach of the principle of legal certainty. This decision also has an effect on other areas as the general simplification rules according to sec. 13b of the German Administrative Circular no longer provide certainty and the 10% hurdle for the qualification as a reseller of power and gas may become invalid.
By circular of 28 October 2013, the Federal Ministry of Finance gives up its former view on the VAT exemption of advisory services for investment management companies and follows the recent decisions of the European Court of Justice and the German Federal Fiscal Court. Furthermore, it gives the taxpayers helpful guidance on the application of the tax exemption pursuant to sec. 4 no. 8 lit. h German VAT Act.
On 30 June 2013 changes regarding statements on invoices became effective. The Federal Ministry of Finance issued a circular regarding these changes on 25 October 2013. In particular, with regard to self-billing invoices (“Gutschrift”), the circular offers relief from a practical point of view. It was clarified that some other documents, such as invoice corrections, could be termed “Gutschrift”. Furthermore, the circular contains a “non-objection provision” regarding invoices issued by 31 December 2013.