The restrictions being put in place due to the coronavirus are increasing, both in Germany and abroad. It is foreseeable that very many companies will experience severe economic difficulties as a result. The German tax authorities are attempting to mitigate the consequences through various measures, in particular by helping companies to obtain liquidity. This newsletter is intended to provide a brief, up-to-date overview of which measures concerning VAT have been announced and initiated.
Structures in VAT are not common. In the recent case before the Tax Court in Lower Saxony, the parties involved tried to obtain input VAT deduction by contributing the input supplies to the subsidiary company as shareholder contributions free of charge. Is this the new "pull a rabbit out of a hat trick" in VAT law set up with a view to undermining the rules for input VAT deduction?
The Coronavirus is spreading rapidly within the EU. In addition to restrictions on public life, companies in many EU member states are also struggling as a result of the virus. The national tax authorities are attempting to help affected companies by means of simplifications, extensions of deadlines and tax deferrals, all with a view to alleviating the negative effects of the Coronavirus. This newsletter provides an overview about the current situation.
In the case of private hospitals, the question of which criteria are to be applied in order to assess whether medical treatment supplies provided until the end of 2019 are VAT exempt remains in dispute. Since last year’s judgement of the German Federal Fiscal Court, special emphasis has been placed on examining the "economic efficiency" as defined by social law. This is the first time that a German fiscal court has dealt with this criterion. The ECJ has commented on the aspect of partial reimbursement of costs by social security institutions. A new legal situation will apply for the financial year 2020.
With its decision of 27.11.2019 (V R 23/19), the Federal Fiscal Court ruled that the activity of a supervisory board member, who receives fixed remuneration without variable remuneration components, is not a taxable person for VAT purposes. In the Federal Fiscal Court’s view, the supervisory board member did not bear any economic risk associated with his activity and therefore, did not provide any services subject to VAT.
The judgment should be transferable to limited liability companies, foundations, advisory boards and comparable supervisory bodies, and possibly also to management boards. The Federal Fiscal Court left open other case constellations, other than fixed remuneration. The Federal Fiscal Court also ruled that a self-billing invoice showing VAT only constitutes a tax liability in accordance to sec 14c para. 2 of the German VAT Act, if the recipient of the self-billing invoice is a taxable person.
Even in the case of a share deal, a non taxable transfer of a going concern can be given in individual cases. This was recently clarified by the Federal Fiscal Court (BFH, judgement of 18.09.2019 – XI R 33/18). This case concerned a controlling company in a VAT group which transferred 100% of the controlled company’s shares. The Court found that, in these sorts of circumstances, if the acquirer of the shares goes on to establish a VAT group with the acquired company, this constitutes a sale of a going concern. Besides that, also other constellations beyond the VAT group are conceivable in which the sale of 100% of shares can lead to a non taxable transfer of a going concern.
The Tax Court Thuringia regards the letting of car parking spaces to tenants of apartments to be a taxable supply. The judgement is not convincing in terms of content and contradicts the opinion of the tax authorities, as well as the case law of Germany’s highest tax court. If the Federal Fiscal Court follows the Tax Court Thuringia in the pending appeal proceedings, the ruling will be of considerable practical importance.
Some concerns currently exist as to the practical application of the Quick Fixes. However, it may be several weeks until the expected administrative circular is published by the Federal Ministry of Finance. The Explanatory Notes published on 20.12.2019, now also including guidelines from the VAT Committee, can serve as a guide. The final version contains some simplifications with regard to consignment stocks. On the other hand, a somewhat stricter approach appears to be emerging with regard to the communication of the correct VAT-ID. Tools for automated VAT-ID queries, such as the VAT-ID Verifier developed by us, can provide valuable assistance here.
For years, the parties involved have been struggling with the legal structure of Brexit. This week, following the approval of the British House of Commons, the House of Lords and also the Queen approved the Withdrawal Agreement negotiated with the EU. The Agreement’s entry into force on 01.02.2020 is thus quasi sealed. The so-called hard Brexit should therefore be averted. In our latest Newsletter, we summarise for you what is actually going to happen on 01.02.2020 and set out which legal regulations in the field of customs and VAT law will, in the very near future, apply between the UK and the EU.
In two judgments (Ref: XI R 2/18 and XI R 28/18), the Federal Fiscal Court decided, in a business-friendly manner, on the "customary description" in terms of invoices. To date, the fiscal authorities and fiscal courts have always required that the description must allow for individual identification of the goods or services rendered, especially in the low-price segment. However, invoices often show only a category of what was supplied. The Federal Fiscal Court has now clarified that the customary character of the description is based on the commercial practice of billing. Entrepreneurs can henceforth invoke the commercial custom of the description used and thus secure the input VAT deduction.