The question as to whether for input tax deductions from invoices in the low-price segment it is necessary to provide information on the type of items that were supplied using the usual commercial descriptions, or whether it is sufficient to state the category of goods, was recently a focus for The Federal Fiscal Court (Bundesfinanzhof, BFH). The Munich-based judges, in their decision from 14.3.2019 (case reference: V B 3/19), expressed serious doubts about whether or not it was possible to request more than the category of the goods.
A case from the wholesaling industry
A wholesaling company operating in the low-price textiles segment had claimed deductions of input tax amounts from invoices where the items were described using only terms such as t-shirts, dresses, tops, etc. The tax authority did not permit the company to deduct the input tax because merely providing the product category does not constitute using the usual commercial description and thus does not satisfy the requirements for a properly prepared invoice. Following the failure of the appeal process, the company applied for a suspension of enforcement. The tax court rejected the application for a suspension and, in turn, the company lodged a complaint against this. In its ruling, the BFH seriously called into question the lawfulness of disallowing the input tax deduction and annulled the decision of the tax court.
Fewer requirements for the description of items supplied in the low-price segment and the violation of EU law
In the view of the BFH, the fact that no supreme court rulings on requirements for the description of items supplied in the low-price segment are yet available already gave rise to serious doubts about the lawfulness of the notices of VAT assessment. Moreover, in the past, tax courts had provided various answers to this question. In a ruling from 29.11.2002 (case reference: V B 119/02), the BFH had held the view that in the case of expensive clocks and watches merely stating the category would not be sufficient.
Although, according to the recently issued ruling, there is a need to clarify the extent to which fewer requirements should be applied to the description of items supplied in the low-price segment. In the case of large purchases of various goods at low unit prices the effort involved in specifying the description of the items supplied could be disproportionate.
Furthermore, the BFH pointed out that, in the case in question, the relevant national rules could potentially be contrary to EU law. The German VAT Act requires that the “usual commercial description” of the item has to be shown on the invoice, while EU law stipulates that this merely has to be the “type of items that have been supplied”.
Recommendation: The case in question was merely a complaint against the suspension of enforcement and was thus not suitable for definitively clarifying the legal issues that were raised. It thus remains to be seen what the ruling will be in the main proceedings. In order to avoid problems with the tax authorities, when verifying invoices importance should be attached to the specific usual commercial description of the goods.
RAin/StBin [German lawyer/tax consultant] Antje Ahlert
From: PKF newsletter 06/2019