In general, the allocation of costs between branches of one taxable person is not subject to VAT. However, there are exceptions to this rule. The ECJ previously established this in the case Skandia America and has now confirmed it. This judgment is interesting for all taxable persons having branches in other countries if at least one of these branches is part of a VAT group int the respective country. According to the ECJ, supplies between these branches can be taxable. This results in financial implications in cases where the recipient is not entitled to full input VAT deduction. All other taxable persons “merely” have to observe the correct legal consequences from a VAT perspective.
In principle, only the person who has the right to dispose of the imported goods when the customs declaration is filed may claim import VAT as input VAT. In 2019, the UK authorities HMRC startled companies and trade organiza-tions. Since this rule has not always been adhered to in the past, HMRC not only wanted to enforce the rule more strictly but (perhaps unintentionally?) tightened it significantly. Having retained its view in 2020 – despite a large number of submissions from the business community – HMRC is now taking a significant step backwards. However, the deduction of import VAT remains demanding. Taxable persons should act with due diligence.
The apportionment of input VAT deduction for mixed-use buildings has repeatedly been the subject of fiscal court proceedings. The German Federal Fiscal Court now states: The taxpayer is not bound to the proportion chosen if it transpires later that it is not appropriate. The taxpayer therefore has a de facto right of choice in these circumstances. The burden of proof as to whether the proportion according to the square footage is more accurate than the allocation according to the turnover lies with the tax office. In the case of significant differences in the equipment of mixed-use buildings, the input VAT is to be allocated according to the (object-related) proportion of the turnover.
Can input VAT deduction be achieved by means of a so-called upstream holding company? This question was referred to the ECJ by the XI. Senate of the Federal Fiscal Court with its decision of 23 September 2020 (XI R 22/18). The Federal Fiscal Court would answer in the negative as it recognises a link to the VAT exempt activities of the subsidiary. Further, it referred the question to the ECJ of whether an abusive structure is involved in such instances.
According to the German Federal Ministry of Finance, businesses not resident in the EU will no longer be able to apply the Tour Operator Margin Scheme as from the start of 2021. If non-EU businesses organise trips to Germany, this may now result in a German VAT liability. On the other hand, input VAT from related input services can now be claimed. Those companies impacted by the changes should now check to ascertain the extent to which they are affected and determine whether they should restructure their business processes in order to avoid the associated disadvantages or to benefit from the advantages.
The ECJ comments on the consideration for the provision of a company car and calls the German practice of company car taxation partially into question. The ECJ's decision is based on a special individual case in which the ECJ affirmed that the provision of a company car was free of charge. In comparable cases, taxable persons can refer directly to the ECJ ruling and may possibly benefit in cross-border situations.
In its judgment of 17 December 2020 in the case WEG Tevesstraße (C-449/19), the ECJ ruled that the VAT exemption, in accordance with sec. 4 no. 13 of the German VAT Act, for certain supplies rendered by associations of residential property owners to their property owners is contrary to EU law. In the future, this VAT burden will lead to the worsening of the position of residential property owners, as compared to tenants and house owners.
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.