German Annual Tax Act 2019 – What does it mean for VAT?

10.07.2019 | FGS Blog

The draft of the German Annual Tax Act 2019 (JStG 2019) contains many amendments to VAT law. These amendments primarily transpose EU legislation into German law. One focus of the JStG 2019 is the transposition of ‘quick fixes’ – new provisions affecting the entire intra-Community movement of goods.

The draft introduces numerous other less conspicuous amendments which are likely to affect many companies. These amendments include the extension of the Tour Operator’s Margin Scheme (TOMS) for travel services to the B2B sector or the denial of an input VAT refund in cases of evasion.

Transposition of the quick fixes

With the transposition of the quick fixes (Art. 17a, Art. 36a and Art. 138 VAT Directive) into German law through the JStG 2019, the provisions for intra-Community supplies and chain transactions will be amended. What’s more, a regulation will be introduced for supplies via consignment warehouses.

Chan transactions

For the first time, the quick fixes will regulate chain transactions throughout the EU.

As the EU provision closely resembles the existing German regulation, the current definition of chain transactions will remain the same. The movement of goods can still be assigned to only one consignment. Some of the existing administrative instructions to determine the moved supply will be incorporated into the VAT Act.

For example, the movement of goods must be determined according to the reason for the transport. If they are transported by or on behalf of the supplier/consignor, its consignment is moved. If the last recipient in the chain is responsible for transport, the consignment is moved to it (collection case).

If an agent transports the goods, the fiction that (i) the agent in principle acts as the recipient, and (ii) the consignment therefore has been moved to it, continues to apply. But it is still possible to rebut this fiction, and for the supplier/consignor to be responsible for transporting the goods. The law requires the agent to give the supplier its VAT ID number from the country of shipment before the start of transport.

In Germany, unlike the case under EU law, this will also apply to supplies to third countries. A VAT ID number and a tax number from the country of shipment are sufficient in the case of exports to transfer responsibility for the movement of goods to an agent.

In the case of imports, a consignment transported by an agent must be classified as moved if it is released for free circulation in its name or for its account (indirect agency).

With this adjustment, the regulations will anchor the allocation of responsibility in the German VAT Act (UStG), and rules will be created for scenarios related to third countries. Hopefully, the simple use of a VAT ID number will reduce the need for discussions about the correct treatment of chain transactions. But taking the reason for transport as a basis entails the continued risk for the supplier/consignor of being unable to identify whether its customer is actually transporting the goods or whether a collection case does not exist.

Intra-Community supplies

Also as a result of EU law, the customer’s VAT ID number and the corresponding entry in the recapitulative statement/iC Sales List (Zusammenfassende Meldung – ZM) will, under substantive law, become prerequisites for tax exemption as an intra-Community supply. For example, Sec. 6a(1) no. 4 German VAT Bill (UStG-RE) requires the customer to use a valid VAT ID number that differs from that applicable in the country of shipment.

For exemption, the turnover must be recorded completely, correctly and in good time at the Federal Central Tax Office (Bundeszentralamt für Steuern – BZSt) Corrections still have to be entered in the iC Sales List. But it is a positive development that a correction for tax exemption can be applied retroactively in the future.

Consignment stocks

Section 6b UStG-RE will introduce a regulation on consignment stock to the German VAT law.

Under certain conditions, this will enable supplies via a warehouse in the country of destination to also be accepted directly as intra-Community supplies or corresponding purchases. As a result, it is not possible to tax (i) an intra-Community transfer at the time of filling the ware-house or (ii) a domestic consignment at the time of withdrawal, meaning the supplier does not face registration and declaration obligations in these cases. Up to now, consignment warehouses have been treated very differently in the Member States. The German tax authorities will currently consider accepting a direct outbound consignment only if the country of destination already applies a simplification rule (guidance issued by the Regional Tax Office of Frankfurt on November 8, 2018).

But an intra-Community transfer must be assumed in the future if (i) the goods have not been removed from the consignment warehouse after 12 months or (ii) the requirements for prefer-ential treatment are no longer met.

And in the wake of simplification, the supplier and the customer will be have to keep comprehensive records.

Destruction, loss or theft of the goods supplied should, in principle, preclude the consignment regulation from applying. To ensure that the rule retains its function of simplifying intra-Community transfers, the EU Commission is discussing the introduction of a de minimis limit (see EU Working Paper No. 968).

Further VAT innovations in the JStG 2019

Reduced tax rate for e-books

Electronic publications such as e-books will be taxed at the reduced rate of 7% if they correspond in function to traditional print media. This means the reduction will apply not only to printed products, but also to digital publications. Excluded are services which go beyond the purpose of analog media, e.g. by offering functions which have no physical equivalent (such as embedded videos).

Benefits in kind – Special place-of-supply (POS) rules abolished

In Germany, benefits in kind have been taxable to date at the registered office of the transferring company (Sec. 3f UStG). With the abolition of the POS rules, the general regulations will also apply here in the future.

The taxation of goods supplied free of charge will therefore depend on the place where the goods are handed over (goods moved: Sec. 3(6) UStG; immovable goods: Sec. 3(7) UStG).

For other services provided free of charge, the registered office of the company providing the service is usually where VAT is triggered, unless special rules apply. But special features have been introduced, for example, in the case of services connected with real estate (POS: location of the real estate) or the short-term provision of vehicles (POS: place of delivery).

TOMS – Travel services (Sec. 25 UStG)

Following the infringement proceedings against the Federal Republic of Germany (CJEU judgment of February 8, 2018 ­ C-380/16), the national limitation of the TOMS for travel services to end consumers (B2C) will no longer apply. So travel services to corporate customers will also be covered by the special regulation. From January 1, 2022 onwards, it will not be possible to use group margins as a tax base.

Liability in the event of tax evasion

So far Sec. 25d UStG has held a taxable person (invoice recipient) liable for the VAT declared by a supplier (invoice issuer) if it knew or should have known that the invoice issuer intentionally did not pay the declared and owed VAT. The provision serves above all to combat VAT fraud such as carousel transactions. But especially in light of the more recent court decisions (BFH judgment of August 10, 2017–- V R 2/17), this rule applies in practice only to a limited extent and is now to be deleted.

Instead, in view of the CJEU judgment of December 18, 2014 – C-131/13, Italmoda, direct sanctioning is planned in the future. In cases of evasion or a corresponding deduction of input VAT and the exemption for intra-Community supplies, the new regulation fails. The prerequisite for the new system of sanctions is that the taxable person knew or should have known of the involvement in evasion. But unlike Sec. 25d UStG, the new regulation does not contain any further details on the criterion of having to know.