First of all, we would like to wish you a happy and successful 2021 VAT year! We look back at a turbulent 2020, in which many VAT changes planned for 2021 were pushed into the background. One more reason to get an overview of important VAT changes for 2021 at the turn of the year. The low-tax phase came to an end on 31 December 2020 and the Annual Tax Act 2020 includes a number of VAT changes. Some of them will take effect on 1 July 2021 (e.g. implementation of the e-commerce package).
For months, the EU and the United Kingdom (UK) have been negotiating an agreement to regulate their mutual relations after Brexit. After several missed deadlines, the parties finally reached a last minute agreement on 24 December 2020. This agreement is to apply as from 1 January 2021 and regulate, among other things, trade relations between the EU and UK. The previous Withdrawal Agreement remains unaffected. Our latest newsletter summarizes what the trade agreement means for VAT and customs law.
In the second half of the year, the Federal Ministry of Finance (BMF) publishes its annual sample VAT returns form that is to be used for the upcoming tax period. This year, for good reason, the new forms were only published by means of a BMF letter dated 22 December 2020. The late publication of the forms was due to the fact that the Annual Tax Act 2020 only came into force on 21 December 2020. The pre-published drafts of the forms caused an uproar in companies and trade associations. However, the short-term efforts of the trade associations to stop the VAT return form 2021 have been unsuccessful. The BMF is sticking with the forms.
In its judgment Golfclub Schloss Igling (Case C-488-18), the ECJ defined the scope of the VAT exemption for sports-related services. The decision affects all sports. Contrary to the case law of the German Federal Fiscal Court, it is not possible to directly invoke Art. 132 para 1 lit. m of the VAT Directive. Court and green fees, as well as racket and ball rental can no longer be exempted from VAT. The national exemption according to § 4 No. 22 lit. b) German VAT Act is not necessarily linked to a formally approved non-profit status pursuant to the German Fiscal Code.
The success of appeals and legal remedies in VAT cases does not only depend on substantive law. Procedural law is also of decisive importance. The following specific aspects may be significant: Late-payment penalties possibly unconstitutional +++ General reference to criminal investigation report by the fiscal court +++ Procedural violation in cases of violation of the right to be heard +++ Inspection of files only on the premises of the court or the tax authorities +++ Electronic mailbox for lawyers mandatory in Bremen
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.