The ECJ has ruled that legal persons governed by private law may be deemed as being bodies governed by public law. This comes as something of a surprise, as the Federal Fiscal Court has previously held a different view on this matter. The new case law is especially important to so-called “entrusted“ taxable persons. The national regulation sec. 2 para. 3 German VAT Act and sec. 2b German VAT Act must now therefore be interpreted in conformity with the directive.
Once again, the fight against loss of tax revenue is the predominant issue for the coming year. Hungary and the Czech Republic are tightening reporting obligations, Romania is extending the reverse charge scheme and France will be the first EU member state to require taxable persons to use the Direct Debit Scheme. Additionally, some countries are focusing on stimulating the economy. Romania is hoping to achieve this aim by dramatically reducing its VAT rates. Italy is delaying the intended increase in its VAT rates. Meanwhile, Austria and Norway are planning to raise revenue by increasing their VAT rates.
On 16 October 2015, the federate states agreed to the Tax Amendment Act 2015. Accordingly, there are various changes to the German VAT Act: the reverse charge on the supply of construction work on installed operating equipment is affected as well as the supply of products made of iron or steel, public sector taxation and chargeable events in respect of VAT charged incorrectly. With effect as of 1 January 2016, the intrastat threshold will be increased as well.
If a taxable person’s invoice shows an amount of VAT that is too high, he is liable for the payment of the inflated amount in accordance with sec 14c para 1 sentence 1 of the German VAT Act. If the taxable person wants to eliminate the tax liability, according to sec 14c para 1 sentence 2 of the German VAT Act, he must correct the invoice. The Federal Ministry of Finance has now tightened the requirements for eliminating such VAT liability: It now additionally requires the supplier to repay the already collected additional VAT amount to the recipient.
The ECJ softens the right to deduct VAT in the case Sveda. Taxable persons may now even deduct VAT in the case of the free use of capital goods. The judgment also comments on the question of whether and how taxable persons are entitled to deduct VAT in the case of grants. It is not only non-profit organizations that will benefit from this case law. The decision may also have an impact on the input VAT deduction of holding companies.
In the Federal Fiscal Court’s opinion, supplies by carers may be tax-free even if they are not regarded as “recognized organizations“. The Federal Fiscal Court specifically referred to the nursing crisis in Germany. The Court stated that such tax-free services are not only in the public interest, but are also in accordance with the principle of equal treatment.
In a decision which had been given little attention up to now, the Federal Fiscal Court tightened the requirements for the deduction of input VAT from invoices. The Court held that taxable persons cannot deduct input VAT from invoices only showing the supplier’s P.O. box address. In this context, the Federal Fiscal Court indicated that this reasoning is also applicable in cases where the P.O. box address of the recipient of the supply is stated on the invoice. The judgement may have far-reaching effects, in particular for German companies.
A few months ago, the Wage Tax regulations for company events and small gifts were changed. This change impacts on VAT. The Federal Ministry of Finance has now given its opinion on this issue. It is no surprise that the Wage Tax regulations may not be fully applied with respect to VAT. In principle, the regulations for Wage Tax are applicable for the VAT treatment for simplification purposes. However, there are also substantial differences between these two types of taxes. In particular, there is no identical treatment if the costs for a company event exceed the value of 110 € per participant.
In a decision of 18 June 2015, the tax court Niedersachsen (Lower Saxony) expressed its disagreement with the tax authorities‘ opinion regarding consignment stocks (case no. 5 K 335/14). The case concerned supplies from the EU to a call-off stock in Germany. The tax court decided that the respective contractual agreements of the parties are essential for the VAT treatment. It is yet to be determined whether an unconditional purchase agreement had already been put in place prior to the goods being shipped to the warehouse. It is now evident that companies may not rely on the rules for consignment stocks as contained in the German VAT Circular. Both, suppliers and customers need to carefully check what is agreed in terms of their consignment stock contracts.
Taxable persons who wish to carry out a zero-rated intra-Community supply of goods must provide proof thereof. Basically, the proof has to be formal in nature, specifically documentary and accounting evidence. In the Federal Fiscal Court’s view (judgment of 19 March 2015 – V R 14/14) evidence provided by a witness is accepted only in exceptional cases. Above all, this decision will have an impact on legal disputes.