VAT digital package: Fundamental VAT changes, especially in e-commerce from July 1, 2021

Attention to online retailers and online marketplace operators. With the implementation of the second stage of the so-called Value Added Taxes (VAT) digital package, fundamental changes will be made to VAT from April 1, 2021 and from July 1, 2021.

In a letter dated April 1, 2021, the Federal Ministry of Finance (BMF) summarized the essential content of the VAT digital package in a 35-page letter and announced changes to the so-called VAT application decree.

The second stage of the VAT digital package includes in particular:

  • Changes in mail order business
  • Inclusion of operators of electronic interfaces in fictitious supply chains
  • Expansion of the one-stop shop (OSS EU procedure)
  • Expansion of the one-stop shop (OSS non-EU procedure)
  • Introduction of an import one-stop shop (IOSS)
  • Introduction of a special regulation for the payment of import sales tax
  • Abolition of the EUR 22 customs exemption threshold

With effect from July 1, 2021, the determination of the place of delivery in the mail order regulations will be fundamentally changed. In the case of distance sales in the European Community, the place of delivery is in principle relocated to the place where the item is at the end of the transport or dispatch to the purchaser.

With effect from July 1, 2021, operators of electronic marketplaces will be liable to pay VAT for certain goods deliveries via an electronic marketplace for the sales tax incurred in the European Community, the supply chain “entrepreneurs to marketplace operators” and “marketplace operators to consumers”.

From April 1, 2021, entrepreneurs who are not resident in the European Community can notify the Federal Central Tax Office (BZfSt) of their participation in the one-stop shop – non-EU regulation electronically.

Domestic companies and entrepreneurs based in the European Community can also electronically report their participation in the one-stop shop – EU regulation from April 1, 2021 to the Federal Central Tax Office (BZfSt).

An optional import one-stop shop (IOSS) was introduced with effect from July 1, 2021 for distance sales of goods imported from third countries with a value of up to EUR 150. Participation in the IOSS can be reported electronically to the Federal Central Tax Office (BZfSt) from April 1, 2021.

To curb VAT fraud, the so-called duty-free limit of EUR 22.00 will be abolished on July 1, 2021. This means that foreign mail order companies will no longer be preferred in the future.
Please contact us as your experts for corporate taxes like Value-Added Taxes (VAT). Please find further information about Value Added Taxes here  on our website. In case of any questions to corporate tax law please do not hesitate to contact us.

Christian Dobner | TLI Steuerberater

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Brexit – VAT consequences of UK exit from the European Union

The exit of Great Britain and Northern Ireland (UK) from the European Union (EU) will have very significant VAT consequences at the end of the so-called transition period of December 31, 2020.

The United Kingdom has qualified as a third country for Value Added Tax (VAT) purposes since January 1, 2021. This does not apply to Northern Ireland for the supply of goods due to its special status. Numerous EU directives in the field of VAT continue to apply to Northern Ireland. In future, a strict distinction must be made between Great Britain and Northern Ireland in the supply of goods. Northern Ireland is still considered a so-called community area for VAT purposes. However, caution is required when providing services. Northern Ireland is also considered as a third country here.

The treatment of supplies made before January 1, 2021, in which the item supplied has reached the UK or domestic from there after December 31, 2020, is questionable. The treatment of other services (long-term services), the provision of which begins before January 1, 2021 and ends after December 31, 2020, must also be examined. Shortly before the end of the so-called transition period of December 31, 2020, the Federal Ministry of Finance expressed itself for the first time in an administrative instruction.
Changes will also result from January 1, 2021 for the application of the so-called Mini-One-Stop-Shop and for the so-called input VAT refund procedure.

Finally, after December 31, 2020, it will no longer be possible to check VAT identification numbers for companies based in the United Kingdom in the so-called confirmation procedure according to Section 18e of the Value Added Tax Act (UStG).
In the first few weeks of the new year, it turned out to be particularly relevant in practice that companies based in Great Britain need an authorized recipient in Germany in accordance with Section 22f (1) sentence 4 UStG.

How things will actually continue in practice in so-called administrative assistance procedures remains open at the moment, even if the German tax authorities refer to the continued applicability of various European agreements.
Please contact us as your VAT experts. Please find further information to corporate tax law here on our website. In case of any questions to corporate tax law please do not hesitate to contact us.

Christian Dobner | TLI Steuerberater

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The right to deduct input VAT for functional holding companies – Final clarification by the European Court of Justice

The dispute over the deductibility of input VAT for a functional holding is entering the next round. The issues in dispute must now be clarified by the European Court of Justice (ECJ).

A pure financial holding whose sole purpose is to acquire and hold company shares is not an entrepreneur from a VAT point of view and is therefore not entitled to deduct input VAT.

The situation is different, however, with a so-called functional holding company, which intervenes directly or indirectly in the management of its corporate participation. A functional holding company regularly provides administrative or commercial services. In this case, the holding company qualifies as an entrepreneur under VAT law and is generally entitled to deduct input VAT from the services it has purchased.

Unlike the rest of corporate tax law or international tax law, VAT is a type of tax that practically requires no creativity from tax advisors. In the case of the input VAT deduction for holding companies, however, a structure was also possible in exceptional cases for VAT. By cleverly interposing a functional holding company, the VAT deduction, which a pure financial holding company is denied, could be obtained.
In a dispute, the Federal Fiscal Court (BFH) now had to decide on the input tax deduction of a management holding company. In a so-called request for a preliminary ruling, the Federal Finance Court submitted two questions to the ECJ on February 15, 2021, according to the ECJ’s notification of March 3, 2021.

First of all, the BFH asks whether the functional holding company is also entitled to an input VAT deduction from purchased services if these purchased services are not directly and directly related to the holding company’s own sales but to the activities of the subsidiary. If the ECJ affirms the input tax deduction for the functional holding company in this case, the BFH asks the second question whether the interposition of the functional holding company is to be viewed as an abuse of law, since the subsidiary would not be entitled to input tax deduction even if the service was directly supplied.

Due to the high practical relevance, the decision of the ECJ is eagerly awaited. Should the ECJ decide that the functional holding company is not entitled to deduct input VAT in such cases, this would be a heavy blow to Germany as a holding location.

Please contact us as your experts for corporate tax law in case of any questions to this VAT issue. Please find further information to VAT here on our website. In case of any questions to corporate tax law please do not hesitate to contact  us.

Christian Dobner | TLI Steuerberater

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