On 3 June 2020, the grand coalition agreed upon a stimulus package to handle the corona pandemic and this package provides for measures in a total amount of EUR 130 thousand millions. Such measures inter alia relate to value added tax rates. On 29 June 2020, the underlying legislation passed the Bundestag and the Bundesrat. With the commencement of the legislation on 1 July 2020, VAT rates are reduced as from 1 July 2020 for a term of six months and the due dates for payment of import VAT will be postponed.
State: 8 November 2020
- Period affected: 1 July 2020 through 31 December 2020
- Current legislation: Second Corona Tax Relief Law in its version of the Bundesrat consent as of 29 June 2020 (BR-Drs. 370/02(B)).
- Letter of the Federal Ministry of Finance: The Federal Ministry of Finance’s letter as of 30 June 2020 accompanying the legislation; letter of the Federal Ministry of Finance as of 1 July 2020 regarding the adjusted version of the fill-in forms for the advanced VAT return as well as the annual VAT return; letter of the Federal Ministry of Finance as of 1 July 2020 regarding the VAT returns for individual vehicle taxation, letter of the Federal Ministry of Finance as of 4 November 2020.
- Reduction of VAT rates (including import VAT):
- Regular tax rate: 16 % (rather than 19 %)
- Reduced tax rate: 5 % (rather than 7 %)
- not applicable with respect to sales from agriculture and forestry according to average rates [except for certain sawmill products, beverages and alcoholic liquids] or insurance tax. As far as the gastronomic business is concerned, the regulations on tax rate reductions of certain sales pursuant to the First Corona Tax Relief Act are partially replaced by the general reduction.
- Postponement of due dates for payment of importation VAT:
by the 26th day of the subsequent month (instead of the 16th day applicable before)
- Challenge: ensuring a correct handling of the new situation on the part of providers/billers and recipients, particularly with respect to system updates (ERP software/compliance processes: tax codes etc.) as from 1 July 2020/1 January 2021 (but non-objection period: July 2020)
Required adjustments in business practice (overview)
Activities to be carried out by the provider/biller
- The applicability of the reduced VAT tax rates is limited to the aforementioned period, i.e. the reduced rate is to be applied on sales generated between 1 July 2020 and 31 December 2020 (date of actual performance). This applies irrespective of the date of contract conclusion, invoicing, receipt of remuneration (including parties subject to actual taxation) or payment.
Rendering of a service at the standard rate on 26 June 2020 (22 December 2020) / invoicing on 3 July 2020 (7 January 2021) = 19 % (16 %).
Rendering of partial services forming part of an entire order or within the framework of a permanent service (e.g. letting inclusive of ancillary services, maintenance or monitoring) at the standard rate prior to 1 July 2020 and after 31 December 2020 = 19 %; after 30 June 2020 and prior to 1 January 2021 = 16 %.
If, at the time of invoicing prior to 1 July 2020 (1 January 2021), it is clear that the service will be rendered later than on 30 June 2020 (31 December 2020), the reduced tax rate (the re-increased tax rate) may be applied in the invoice.
- This provision covers all deliveries, other services, intra-community acquisitions and deliveries for which the final consumer owes the VAT within the framework of an intra-community triangular deals, as well as all reverse charge sales.
- Partial services are deemed to be rendered if the remuneration for specific parts of a service that may, from an economical point of view, be split has been separately agreed upon and billed (as to particularities in different industries: see [leaflet informing about sales taxation in the construction industry] Merkblatt zur Umsatzbesteuerung in der Bauwirtschaft, and Merkblatt zur Umsatzbesteuerung in der Bauwirtschaft (USt M 2))
- The determination of the time of service provision is of decisive importance; examples:
- delivery = time when the goods start to move / power of disposal over the good (no move of goods)
- service = time of completion
- delivery of works = time of acceptance
- intra-community acquisition = arrival of the goods (power of disposal over the good)
- reverse change = see services
- The same also applies to single-purpose vouchers (replacing a service) which are subject to taxation at the time of their issue. The VAT rate applicable for a single-purpose voucher exclusively depends on the time of its issue; a change of subsequent circumstances is irrelevant. On the one hand, single-purpose voucher issued prior to 1 July 2020 will for this reason not profit from the VAT tax reduction. On the other hand, beneficiaries are given the possibility to benefit from the VAT rate deduction even after 31 December 2020 if they redeem the voucher as late as after expiry of the period affected, something which might particularly be interesting for beneficiaries holding no input tax deduction right (e.g. private end consumers) or holding a limited input tax deduction right only (e.g. non-profit organisations); regarding restrictions related to purchase commitments see letter the Federal Ministry of Finance as of 4 November 2020, Ref.no. 5 f. Only in case of additional payments, if any, to be made by the holder of the voucher when redeeming the voucher the difference amount not yet taxed will be subject to the VAT rates applicable at the time being.
Multipurpose vouchers, however, are subject to the VAT rate applicable at the time of their use.
Particularities arise in case of price reduction and price refund coupons.
- Advance collection (e.g. down payments or partial payments) of remunerations for (partial) services (in this respect, transition to actual taxation): Unless both the time of collection and the time of service are within or outside the reduction period, an adjustment is to be made in the VAT accounting period covering the service provision.
The service forming the basis of the down payment received on 26 June 2020 is rendered on 3 July 2020. The VAT amount at a rate of 19 %, as included in the VAT return for the month of June, has to be adjusted to the reduced standard rate in July (e.g. by deducting the 19 %-related VAT amount from the month of June in the final account).
In contrast to this “crediting” in form of a direct deduction, the tax return is made on a negative assessment basis (practically: cancellation and new entry) in the pre-printed forms. (advance VAT return: lines 26 et seq. [nos. 81 and 86]; VAT annual return: lines 38 [no. 177] and 41 [no. 275].
- The Federal Ministry of Finance published a letter on 1 July 2020 containing the adjusted instructions for the fill-in forms
- for advanced VAT returns: https://www.bundesfinanzministerium.de/Content/DE/Downloads/BMF_Schreiben/Steuerarten/Umsatzsteuer/2020-07-01-muster-USt-voranmeldungs-vorauszahlungsverfahren-2020.pdf;jsessionid=1873817A54A53E45B4D992367451DA9C.delivery2-replication?__blob=publicationFile&v=2;
- for the annual VAT returns: https://www.bundesfinanzministerium.de/Content/DE/Downloads/BMF_Schreiben/Steuerarten/Umsatzsteuer/2020-07-01-muster-USterklaerung-2020.pdf;jsessionid=17AFC607CAE17A1E343FFFB347A771E5.delivery1-replication?__blob=publicationFile&v=2
- If payments are made on a calendar year basis (e.g. licences or membership fees), the respective reduced rate applies to the entire fee because these payments are deemed to have been made upon expiry of the performance period; all what has been said above with respect to advance collections applies mutatis mutandis. Invoices already issued have to be adjusted, if necessary.
- For changes of the assessment value, the tax rate applicable to the underlying services/payments at the time of performance are applicable; this very tax rate is also decisive for the change of the assessment basis in the VAT accounting period of the occurrence of the change. Annual bonuses have to be split, if necessary (inclusive of an evidence of the splitting in form of a voucher for recipients, see letter the Federal Ministry of Finance as of 4 November 2020, Ref.no. 8 f.).
service provision/payment at the standard tax rate on 26 June 2020 = 19 %; granting of a discount on the service/payment on 3 July 2020 = also 19 % (not: 16 %).
In case of reverse charge sales, the adjustment is to be made by the recipient.
- If contracts dealing with permanent services/payments serve as invoices (e.g. letting subject to tax) and, consequently, provide for the tax rate or tax amount, such contracts have to be amended with respect to the period of the tax rate reductions. This amendment can be made in form of a simple supplement to an invoice, explicitly referring to the underlying invoice/contract. The same applies mutatis mutandis to long-term invoices.
- If the tax rate reduction has an impact on pricing (to be examined in each individual case on the basis of the underlying contractual agreements), it must be taken into account that a claim for compensation under civil law may arise when adjusting long-term contracts (concluded prior to 1 March 2020). According to law, this applies exclusively to contracts concluded with binding effect no less than 4 months prior to the tax rate reduction.
- Price quotations/labelling need not be compellingly changed during the night to 1 July 2020. Instead and as an exception, a lump sum discount may be used at the checkout according to the PAngV (Quotation of Prices Act) (in this context, reference is made to the letter of the Federal Ministry for Economic Affairs and Energy dated 10 June 2020). Price-bound articles (e.g. prescription medicines), however, are excluded from this facilitation.
- In the event that the tax rate reductions fail to be implemented, i.e. if invoices are continued to be issued by charging the higher tax rate, the issuer of the invoice becomes liable for the difference between the correct (lower) VAT amount and the charged (higher) VAT rate (so-called “§ 14c UStG-invoice tax”). Although this liability will, as a rule, be settled by paying the difference to the tax office, such error is supposed to cause more administrative efforts when corrections are subsequently initiated by the recipient of the invoice (see below).
Non-objection period: Last but not least in order to grant companies more time for a (system-related) implementation of the VAT rate reduction, it will for reasons of facilitation not result in any complaint if an invoice for services made in July is issued by charging VAT at a rate of 19 % or, as the case may be, 7 %.
- The letters of the Federal Ministry of Finance as of 30 June 2020 and 4 November 2020 furthermore include explanatory notes on
- telecommunication services, supplies of electricity, gas, water, cooling power and heat as well as wastewater disposal;
- passenger transports;
- sales representatives and trade brokers;
- catering industry sales during the transition nights to 1.7.2020 and 1.1.2021,
- the exchange of goods,
- advance and down payment invoices,
- issue of vouchers for vouchers ordered bindingly and restaurant vouchers,
- granting of annual bonuses,
- manufacturer discounts on the supply of pharmaceutical products,
- special and compensatory payments for rental and leasing contracts,
- the total margin formation
- differential taxation,
- newspaper and magazine subscriptions,
- services of an insolvency administrator,
- for scaffolding and
- recurring services
- In addition, the letter of the Federal Ministry of Finance renders more details on the – basically mirror-inverted – circumstances at the time of the (re)increase of VAT rates as of 1 January 2021.
- VAT tax forms are said to remain unchanged. Instead, the changes are to be taken into account by using lines 28 for taxable deliveries and other services and 35 for intra-community acquisitions (nos. 35 and 36 or nos. 95 and 98 respectively; NOT Line 62 [no. 65]) in the advance VAT return; and line 45 for taxable deliveries and other services [nos. 155 and 156], line 84 (nos. 798 and 799) for intra-community acquisitions and line 96 (nos. 747 and 748; NOT line 58 [no. 319] ) for intra-community triangular trade in the annual VAT return.
Reverse charge sales have to be included in the usual lines, irrespective of the tax rate to be applied, i.e. in the advance VAT return in lines 48 to 50 (nos. 46 et seq., 73 et seq., and 84 et seq.) and in the annual VAT return in lines 99 to 101 (nos. 846 et seq., 873 et seq. and 877 et seq.).
Activities to be carried out by the recipient
- The aforementioned principles on the activities to be carried out by the provider/biller have to be performed the other way round when looking at such services/invoices, as received by the other party and to be examined upon receipt of the invoice.
- This is, for instance, also applicable with respect to the input tax deduction in connection with advance payments, advance invoices or the like. This deduction can, after invoice receipt and payment of the (partial) remuneration prior to 1 July 2020, be made in the amount of 19 % or, as the case may be, 7 %. Adjustments must be made in the period of service provision by entering the resulting difference between the tax amounts according to the final statement and the already reported input tax (when appropriate, with a minus symbol).
For this purpose, the usual lines in the forms are to be used (advance VAT return: line 52 [no. 66]; annual VAT return: line 122 [no. 320].
- In the event that the aforementioned principles fail to be observed in the received invoices, the issuer of the invoice should be given a notice to this effect and asked to correct it.
- In this context, it must be noted that an input tax deduction may only be made in the amount of the tax owed according to statutory provisions. An excessive VAT rate or, as the case may be, input tax deduction of a so-called “§ 14c UStG invoice tax” (see above) is inadmissible and would have to be corrected in the course of a regular costly procedure to be coordinated between the biller, the recipient and the tax offices involved.
Exception: As an exception, this does not apply with respect to invoices issued for recipients entitled to input tax deductions during the non-objection period (see above). The § 14c UStG invoice tax stated in case of corresponding B2B constellations in connection with services rendered in July of 2020 may for this reason be deducted.
- In addition, the reduced VAT rates must be taken into account and systemically updated in case of reverse charge sales received as well as in case of inter-community deliveries (as to lines and numbers used for this purpose in the printed forms, see above).
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