Differences in the VAT assessment of “work supplies” in German VAT; supplies with installation under European Union and Spanish law (part 1)

Due to the harmonised EU VAT Directive, VAT law is largely consistent across EU member states. However, the directive regulations are partly optional and are not directly applicable law; implementation is left to the member states themselves. This is also the case in the field of plant construction and engineering. Here, services are often combined with goods, and suppliers regularly use subcontractors who supply parts, install parts and, if necessary, connect them to existing systems.

In principle, this relates to how supplies of different goods are assessed when goods are assembled at the customer’s site or delivered with installation.

In this case, Union law generally provides for a collective supply. In contrast, German VAT law has a much smaller scope of application with the provision of so-called “work supplies” and has only provided for the reverse charge procedure if the supplier is not established in Germany. The details of the respective regulations and the effects in individual cases are explained below.

Companies often face challenges when goods are transported across borders for installation at the recipient's site. This applies, for example, when a Spanish company supplies certain components from its own warehouse in Spain and sources additional parts from partner companies in other EU member states – or vice versa. A plant/machine is then to be assembled from the individual parts in Germany. In this case, the Spanish company must determine the place of the supply for the plant, as well as the party responsible for VAT, including the components acquired from other member states.

Conversely, this also applies to German companies in Spain, as a completely different understanding applies there and, in some cases, even a fixed establishment is assumed.

EU law regulation

According to Art. 32 of the VAT-Dir., the place of supply in the context of a moved supply is generally determined as the place where the goods are located at the time of dispatch or transport to the customer. Consequently, if a Spanish company dispatches the goods to Germany, the place of supply is in Spain. The supply is therefore taxable in Spain.

However, in the case of supplies with installation/assembly, EU law provides for a different place of supply as the place where the installation or assembly is carried out (Art. 36 of the VAT-Dir.), and that, for such purposes, no taxable event will take place in the transfer of own goods to be installed (Art. 17 of the VAT-Dir.).

The supply of assembly work is not expressly defined in EU law. However, it results from Art. 36 of the VAT-Dir. that an assembly supply is one in which the goods are dispatched or transported by the supplier, the customer or a third party and then installed or assembled by or on behalf of the supplier. Still, it is not possible to infer any specific requirements for the assembly or installation. EU law does not stipulate that the installed or assembled goods must be external. Rather, all assembly services, including on own goods, are sufficient for an assembly supply within the meaning of the provision.

The member states have been given the option of implementing regulations according to which the tax liability for assembly supplies is transferred to the recipient (reverse-charge) if the assembly supply is provided by a non-resident (Art. 194 para. 1 of the VAT-Dir.).

As the opening entry in a three-part blog series, this article has been jointly authored by our colleague Rainald Vobbe alongside María Teresa Deltell and Carlos Gómez Barrero from Garrigues in Spain. The series continues with Part 2 on Work Supplies under German VAT Law and Part 3 on Supplies with Installation under Spanish VAT Law.