What is a precious metal weight account?

When scrap metal is processed and recycled to extract precious metals, VAT aspects come into effect at various stages of processing. Precious metal weight accounts are maintained for this purpose. If an owner delivers metal to a refinery, the metal is recorded as credit in a weight account of the supplier and ownership of the metal remains with the supplier. However, the physical metal is usually held in collective custody, so that the metal delivered is mixed with the metal of other customers. It is then no longer possible to identify the metal delivered and assign it to the customer. Under civil law, this therefore generally gives rise to joint ownership. The precious metal weight account, on the other hand, only shows the ownership structure of the total metal available.

Why is a precious metal weight account necessary?

Although the owner could simply sell the precious metal to the refinery and then buy it back, a precious metal weight account offers a number of advantages. The first advantage of a precious metal account is that it avoids price fluctuations. Secondly, the balance of the precious metal weight account can be transferred worldwide without any problems, which gives the custodian a high degree of flexibility. Thirdly, buying and selling involve high additional costs; in particular the transport has a significant impact on such valuable materials.

What are the consequences of using a precious metal weight account from a VAT perspective?

The recycling or refining process – using the metal weight account – may be a VAT-exempt supply, a supply of goods or a supply of services. German VAT law and the European VAT Directive do not contain any explicit regulations on this. The VAT treatment is therefore controversial and must be assessed on a case-by-case analysis. However, certain guidelines are provided in a letter from the German Federal Ministry of Finance (Federal Ministry of Finance dated 17 January 2022 – III C 2 – S 7100/19/10002: 002 BStBl 2022 I p. 161). Accordingly, the agreements made for the underlying transaction are crucial. For the assumption of a supply of goods, the agreements must specify that the ability to dispose of an item as owner in one's own name is transferred (Section 3 para 1 of the (German) VAT Act and Article 14 para 1 of the VAT Directive). This is only the case if the object of the supply of goods is sufficiently specified. The crucial factor here is whether the metal has been specified before the transfer or whether it was already intended at the time of the underlying transaction to be specified before the transfer. The tax authorities apply various criteria in this regard: according to these criteria, there is a lack of specification before the transfer if the place of delivery, form, denomination and purity of the metal have not yet been determined. In this case, the weight account holder is only entitled to a claim for the realisation of a right that requires specification, which does not yet constitute the granting of power of disposal and is therefore not a supply of goods but a supply of services.

When are precious metal weight accounts not subject to VAT?

There are also constellations in which precious metal weight accounts are not subject to VAT. This is the case for weight account movements without an underlying transaction (e.g. transfers between banks or deliveries with self-billing invoices to the weight account) or for spread trading/hedging transactions where a contract for repurchase is already concluded with the contractual partner at the time of sale of the precious metals in order to reduce price and liquidation risks.

So what is crucial for the VAT assessment?

Classification as a supply of goods or a supply of services depends on whether it has been agreed between the parties when and whether the metal will actually be made physically available, whether the location of the stored/physical metal is known to the weight account holder at the time of acquisition of the claim, and whether it has been agreed between the parties in what form, denomination and purity the metals will be called off. Taxable persons must refer to the underlying transaction. Appropriate wording in the general terms and conditions (GTC) and individual contractual agreements is decisive for classification. We would be happy to advise you!