Annual Tax Act ("JStG 2022") and sales tax

Planned changes in the Value Added Tax Act (UStG)

The planned changes in the area of VAT cover Articles 8 to 11, and all articles have in common that they provide for various changes regarding the "towards" electronic transmission of data and the "away" from paper.

In detail:

Regarding Art. 8:

With Art. 8, the Ministry would like to exclude the input tax deduction for foreign companies within the framework of the input tax refund procedure by amending Sec. 18 (9) Sentence 3 UStG-E, namely if they have been charged VAT by domestic companies for export deliveries or intra-Community deliveries, although these deliveries may be tax-exempt.could.

The explanatory memorandum to the Act explains that the provision implements EU law requirements, namely Article 171(3)(b) of the VAT Directive.

Assessment of PSP:

At first glance, the statements in the explanatory memorandum are correct. However, the introduction of the regulation is surprising for several reasons and in particularat the present time. Its legal basis was already essentially codified in Art. 17 para. 4 lit. c of the 6th EC Directive and has been included in the VAT Directive in its current form since 2010. As long as theCommunication of the VAT identification number was judged to be a purely formal requirement for tax exemption, the understanding "transposed" into national law is understandable and was in line with European principles. However, it must be taken into account that until the fundamental changes in the context of the quick fixes, the intra-Community supply was exempt from VAT despite the formal error. During this time, the disclosure of VAT could certainly be judged as incorrect disclosure of tax (Art. 203 or § 14c (1) UStG), which, even according to the case law of the ECJ, in principle does not entitle the taxpayer to deduct input tax.

However, the Quick Fixes have fundamentally changed the starting position with respect to intra-Community supplies. In particular, due to pressure from Germany, formal requirements, namely (-) the timely notification of the VAT identification number of the foreign acquirer of the goods and (--) the reporting of the turnover in the recapitulative statement, became, at least in terms of their effect, substantive requirements for tax exemption. However, according to the understanding of PSP, this fundamental change has a mirror-image effect on the service recipient. The VAT statement correctly made by the service provider on the basis of the legal amendment in the invoice in the absence of even one of the two requirements does not lead to an incorrect tax statement. If the other general conditions for deduction are met, there is a right to deduct input tax. According to the understanding of PSP, a denial of the input tax deduction, as now provided for by the regulation, leads to a violation of neutrality and, in addition, also to a violation of competition compared to purely domestic purchases.

The fact that the provision of Art. 173 (3) (b) VAT Directive was not deleted in connection with the introduction of the Quick Fixes is certainly an omission, but in the opinion of PSP cannot justify the legislative initiative. As is known, there was considerable time pressure in the implementation of the Quick Fixes under the leadership of the Austrian Council Presidency at the time.

It should be noted that the introduction of the provision is in considerable tension with the principles of neutrality and competition and is therefore rejected.

If the draft law is passed, proceedings before the ECJ will be inevitable. It should also be borne in mind that the regulation is likely to reflect badly on Germany, particularly in the case of foreign companies that are predominantly honest. In this context, corresponding objections by the competent Federal Central Tax Office (BZSt) are bound to trigger civil law disputes between the foreign company and the honest German company (service provider as contractual partner) and will therefore rightly also be met with a similar lack of understanding by this group of people.

Re Art. 9:

Among other things, the deletion of sentence 2 in § 4 number 1 letter b sentence 2 UStG is envisaged. This is intended to "clarify" that the conditions for the existence of a tax-exempt intra-Community supply apply irrespective of the deadline for the correction of the recapitulative statement specified in Section 18a (10) UStG. This gives retroactive effect to the corrected submission. The explanatory memorandum to the Act formulates the matter differently in that the correction revives the exemption.

The planned abolition of Section 23 of the German Turnover Tax Act (UStG), i.e. the flat-rate input tax based on average rates, is likely to have a drastic impact on many smaller companies in particular. In the opinion of PSP, the deletion of a simplification provision is precisely the opposite of the abolition of measures to reduce bureaucracy.

Up to now, non-profit organizations with an annual taxable turnover of up to EUR 35,000.00 have been allowed to charge VAT at an average rate. The turnover limit is now to be raised to EUR 45,000.00.

Re Art. 10:

Art. 10 primarily contains comprehensive provisions (obligations) for payment service providers. This is intended to implement the provisions of Art. 243a et seq. of the VAT Directive, which will apply from 01.01.2024.

Re Art. 11:

The provision, as well as other provisions in the aforementioned articles that are not the subject of the article, regulates declaration obligations (in this case, regarding the tax refund of agricultural and forestry enterprises).