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.
Taxable persons have always issued vouchers under a diverse range of purposes. They are used, for example, for the purpose of customer acquisition. They also have a pre-financing effect and are often not redeemed by the customer, despite payment. Since 01.01.2019, vouchers have been regulated by sec. 3 para. 13 to 15 German VAT Act. The Federal Ministry of Finance’s recent letter dated 02.11.2020 now sets out how, in the opinion of the tax authorities, the provisions should be interpreted. At least as of 01.01.2021, taxable persons should, if possible, structure their vouchers as multi-purpose vouchers.
The German Federal Ministry of Finance has published its long-awaited letter on the conditions for VAT exemption of intra-community supplies, which were tightened as of 01.01.2020. The Ministry has a very strict view regarding recapitulative statements. These must not only be submitted correctly and completely, but also on time. Corrections of any errors must also be made in due time and also in the appropriate period. Regarding the use of VAT ID numbers, the Ministry is much more liberal. There are no heavy demands placed on the proof of use and retroactive use is also possible. However, one thing seems to be inevitable: It must always be checked whether the customer's VAT ID number is valid at the time of delivery. Digital tools such as the KMLZ VAT-ID Verifier can offer support in this regard.
The ECJ has strengthened the right to deduct input VAT and thus the neutrality of VAT. Taxable persons who construct development facilities and later hand them over to the municipality, free of charge, are entitled to deduct input VAT. With its judgment of 16 September 2020 in the case Mitteldeutsche Hartstein-Industrie AG (C-528/19), the ECJ goes even further and states that taxation of a supply carried out free of charge can also be omitted.
The planned amendments to the regulation on marketplace liability in the Annual Tax Act 2020 are contrary to the purpose of the OSS procedure. Online traders will be required to submit a German VAT-ID to their online marketplace operator. Online traders from other EU countries must therefore register in Germany for VAT purposes. This is precisely what the new OSS procedure was intended to avoid.
Supplies in which the supplier transports goods to the customer and then installs them at the supplier’s premises are not subject to sec. 3 (4) of the German VAT Act. In other words, “assembly deliveries” are not “work deliveries”. The Federal Fiscal Court already decided the following in 2013: Only cases where goods not belonging to the supplier are processed can be qualified as work deliveries. The Federal Ministry of Finance is now incorporating this case law into the Administrative VAT Guidelines, thereby ensuring the long overdue clarification. The reverse charge scheme, according to sec. 13b of the German VAT Act, is thereby restricted. Foreign suppliers with projects in Germany will therefore have to check in future whether they are performing work deliveries or assembly deliveries. The latter will then lead to an obligation to register in Germany from 2021, at the latest, due to the fact that the reverse charge scheme does not apply.
The long-awaited Federal Ministry of Finance letter on the retroactive effect of invoice correction and the deduction of input VAT, in the absence of a proper invoice, has now been published. The Federal Ministry of Finance’s letter implements the ECJ case law of 15 September 2016 in the cases of Senatex and Barlis 06, as well as other subsequent rulings. Accordingly, an incorrect invoice, which contains the five core characteristics, can now be corrected retroactively. In the instance of a presumed reverse charge case, showing VAT retroactively is also possible. A retroactive correction of an invoice is also possible in circumstances where the correction is made by cancelling and issuing a new invoice. Input VAT can also be deducted from an incorrect invoice without an invoice correction if the taxable person is able to provide objective proof in other ways. However, according to the Federal Ministry of Finance, showing VAT in an invoice is a key element and cannot be replaced by any other form of evidence. Furthermore, input VAT deduction, without an invoice, remains impossible.
In a chain transaction, the goods must be shipped directly from the first supplier to the last customer. Whether this is also the case when the first supplier and the last buyer each order a partial transport (so-called “broken transport”) is disputed. In its judgement of 17.06.2020 (ref. 7 K 7214/17), the tax court Berlin-Brandenburg affirmed the chain transaction, despite broken transport. The effect of the judgement should be manageable. It is only convincing to a limited extent and the other Member States concerned are not bound by it.
If a participant in a supply chain commits VAT fraud, the tax authorities often hold other companies in the supply chain liable. The allegation that a company "should have known" about a particular VAT fraud is one argument, which is readily asserted by the tax authorities against affected companies, in an effort to deny them input VAT deduction or zero-rating for cross-border supplies or even both. However, a number of recent decisions provide some degree of assistance: The German Federal Fiscal Court has now decided that the simple non-payment of VAT is not sufficient for the purposes of establishing the existence of VAT fraud. The Fiscal Court of Berlin-Brandenburg wants to establish a strict understanding of the term “supply chain“ and is referring questions concerning this issue to the European Court of Justice. The Fiscal Court of Hessian recently obliged a tax office to pay out input VAT amounts by way of interim relief, in a case where the tax office's accusations were unsubstantiated.
The Federal Fiscal Court has strengthened its restrictive opinion regarding retroactive invoice correction. In accordance with its previous jurisdiction the Court adheres to its earlier opinion that an invoice is a mandatory requirement for the deduction of input VAT. The Court confirms that a retroactively correctable invoice must satisfy five minimum requirements, including a specification of the supply, from which it must be possible to identify the supply being invoiced.