With its judgement of 17 October 2018 in the Ryanair case, the ECJ confirmed that holding companies do not play a special role in VAT law. The only signifi-cant factor is whether they are taxable persons within the scope of the VAT Directive.
The tax authorities should now rethink. The mere denial of the right to deduct input VAT with reference to the holding structure is not permitted. However, holding companies should also assess their VAT status if they want to avoid expensive surprises.
On 18 October 2018, the ECJ ruled in the Volkswagen Financial Services Case. It concerned the deduction of input VAT from company overheads (e.g. IT infrastructure, offices and office supplies) with exempt and taxable output supplies. The taxable person paid general costs using funds from exempt output supplies. However, this was found not to prevent the formation of a direct link with the taxable activity. The ECJ therefore, once again, confirms that the direct connection between input supplies and taxable output supplies must be viewed broadly.
CROATIA restricts the applicability of the local reverse charge mechanism +++ FRANCE abolishes Saisonnier-returns +++ INDIA requires online market place operators to withhold tax +++ ITALY reduces the scope of electronic invoicing +++ PORTUGAL introduces real-time reporting +++ SLOVENIA requires distance sellers to file Intrastat declarations +++ SWITZERLAND only charges broadcasting fees to established companies and applies VAT to distance sales +++UK introduced a software-interface solution to file VAT returns
On 02.10.2018, the EU Finance Ministers in the ECOFIN reached a decision on a number of measures in the field of VAT legislation. The ECOFIN agreed on the so-called “quick fixes” proposed by the EU Commission last year and these shall apply as of 01.01.2020 (cf. KMLZ Newsletter 32/2017). Furthermore, the Council allowed, until 30.06.2022, to apply temporarily the generalised reverse charge regime. In the future, member states will be permitted to apply a reduced VAT rate or a zero rate to electronic publications. The agreed measures to strengthen administrative cooperation between member states shall apply as of 01.01.2020.
The Federal Ministry of Finance limits the scope of application for supplies in maritime transport and aviation (letter of 05.09.2018). The transactions will be zero-rated, if the watercraft or aircraft can already be clearly and unambiguously identified at the time of the supply. Zero-rating can also be applied to supplies carried out at the earlier stage of the commercial chain where the supplier is able to prove the final purpose of the supply destined for a tax-advantaged watercraft or aircraft, by means of accounting and other documentary evidence. The tax benefits only apply to existing watercraft or aircraft.
VAT claims are often accompanied by both an assessment of interest, pursuant to sec 233a German General Fiscal Code, as well as late payment penalties, pursuant to sec 240 German General Fiscal Code. With regard to the interest rate, constitutional doubts are currently being raised (see KMLZ Newsletter 25/2018). The Fiscal Court Munich has now also expressed these same doubts regarding late payment penalties in circumstances where the taxpayer is over-indebted and insolvent for periods dating from 2015 (decision of 13.08.2018 – 14 V 736/18). In such cases, the late payment penalties are to be entirely waived. Accordingly, a managing director cannot be held liable.
In an invoice issued for the purpose of input VAT deduction, the supplier’s address is not required to be the place of his or her economic activity. This was decided by the German Federal Fiscal Court in two judgments of 21 June 2018 (V R 25/15 and V R 28/16). The German Federal Fiscal Court thus follows the ECJ in the German rulings in Geissel and Butin – C-374/16 and C-375/16. It is sufficient if the supplier can be reached at the given address. It is also sufficient, for example, to provide the address of a law firm which is also the domicile of other companies. Moreover, the fact that there is a domicile address of the supplier does not justify accusations of bad faith on the part of the recipient. Despite VAT fraud in the supply chain, the German Federal Fiscal Court granted input VAT deduction in the proceedings V R 28/16. The tax office is required to prove knowledge of tax evasion or knowledge of facts which should have alerted the recipient to the existence thereof, which was not the case here.
According to a recent Federal Fiscal Court decision (XI R 16/16 of 25.04.2018), with regard to commissionaire structures personal VAT-exemptions also apply to the procurement of services by the undisclosed agent. Thus, the Federal Fiscal Court contradicts the fiscal authority’s current view. The decision results in changes, which will apply to all undisclosed agents procuring VAT-exempt supplies. They now need to check whether they are required to invoice without VAT in the future and whether VAT refunds can be applied for past transactions.
According to the Federal Fiscal Court, (decision of 16.05.2018 – XI R 28/16), any correction of VAT liability in accordance with sec 14c para 1 sentence 2 of the German VAT Act (= sec. 203 of the VAT Directive) requires, in addition to the correction of the invoice, that the supplier has paid back the wrongfully invoiced VAT amount to the customer. In the absence of such a repayment, the supplier would be unjustly enriched. For taxable persons this means that they often have to pre-finance the respective VAT amount. Further, they may declare the correction of their VAT liability to the tax office only during the reporting period of the repayment not earlier. However, there are still likely to be constellations where a repayment to the customer is irrelevant.
In its judgement of 25.07.2018 in the legal case C-140/17 the ECJ ruled that a municipality can become entitled to input VAT deduction by virtue of a subsequent allocation decision. According to the ECJ, an input VAT correction is not ruled out merely because the public body used an asset exclusively on behalf of the government at the time of its acquisition. The ruling gives hope to both public and private bodies that the previous static allocation of assets to the non-economic sector, at the time of their acquisition, will ultimately become a thing of the past.