30.07.2019

Draft of the 2019 Annual Tax Act – New VAT regulations and other important individual measures

Averting abusive tax structuring and the necessary adaptations of German tax laws to bring them into line with court judgements were the reasons behind the publication, on 8.5.2019, by the Federal Ministry of Finance (Bundesministerium der Finanzen, BMF) of a draft bill for the proposed “Act to promote further tax incentives for electromobility and to amend other tax regulations”. Other significant new regulations are set out below, in particular those relating to VAT. In addition, we have provided information on the affiliation privilege for trade tax purposes, real estate transfer tax in the case of share deals and subsistence expenses.

New VAT regulations

No tax exemption for intra-Community deliveries without an RS

A new criterion for the tax exemption of intra-Community deliveries will be the submission of a correct, so-called, recapitulative statement (RS) in accordance with Section 4 no. 1b of the of the VAT Act-Draft (Umsatzsteuergesetz-Entwurf, UStG-E). The preamble to the law could be understood to imply that, first of all, the tax exemption should be granted. However, if a business subsequently fails to submit an RS then the exemption would be refused in the following month.

VAT ID no. and tax registration of the recipient

Another requirement for the tax exemption of an intra-Community delivery, besides submitting an RS, is that the customer has to be registered in another member state and has to use a valid VAT ID no. vis-à-vis the supplying business (Section 6a UStG-E). As a result, this would introduce an explicit request for a VAT ID no. It is still open as to what action should be taken if, subsequently, it becomes apparent to the suppliers that the recipient’s VAT ID no. is not valid.


Please note: Notwithstanding the new regulations, Section 17a et seq. of the German VAT Implementing Ordinance shall continue to apply. Thus, despite a considerable tightening up of the rules, the ‘normal’ Confirmation of Arrival document may continue to be used as proof that the delivery was tax exempt.

Adoption of Section 6b UStG for consignment warehouses

Under this new regulation, the source of which was the new Article 17a of the Directive on the VAT System (Mehrwertsteuersystem-Richtlinie, MwStSystRL), the rules for consignment warehouses in the Single Market will be applied in a consistent manner. Germany will now likewise be able to make use of the simplification rule according to which the transfer of goods from another EU member state to a consignment warehouse located in Germany, or vice versa, would not yet lead to an intra-Community purchase occurring at that stage. As a result of the new provision the obligation to register abroad for tax purposes will cease and only one transaction will have to be reported (the intra-Community delivery) and no longer three (the intra-Community transfer, the intra-Community purchase and the inactive supply in the state of destination).


According to Section 6b UStG-E, the supply transaction has to exhibit the following features in order to fall under the consignment warehouse rule:

  • the supplying business knows the future purchaser’s complete name and address at the point in time when the transport or dispatch operation begins;
  • the supplying business has neither a registered office nor a permanent establishment in the Member State of the destination;
  • the purchaser has used - vis-à-vis the supplying business - its VAT ID no. issued in the destination country.

Chain transactions

Article 36a MwStSystRL constitutes a regulation that, for the first time, has been created to be applied consistently to chain transactions throughout the EU. The previous provisions under Section 3(5) and (6) UStG will be transferred to a new Section 3(6a) UStG-E. This provision would regulate EU-related chain transactions as well as domestic chain transactions and those in relation to third countries.


The previous regulations will remain in force in cases where the transport has been arranged by the first or the last business. This means that, in each case, the delivery would have to be classified as the one coming from the first business or going to this last business.

 

If the transport is arranged by an intermediary then the transfer of the supply has to be attributed to the intermediary. If, in the process, the intermediary uses a VAT ID no. from the state of departure then the transport would have to be attributed to the intermediary’s delivery. When determining the active delivery it is then no longer important to know who arranged the transport. This is a new rule and it still has to be tested. According to the preamble to the law, it should be sufficient if the intermediary documents that, vis-à-vis its supplying business, it has declared that it wants to use the VAT ID no. issued to it by the state of departure of the goods for all future deliveries.


Please note: In addition, a similar intermediary rule has been introduced for third country-related export chain transactions.

A reduced VAT rate for e-books

In the future, a reduced VAT rate of 7% will apply to books, newspapers and periodicals in electronic form. There will be no VAT concessions for, among other things, access to:

  • search engines even if they display excerpts from the found documents,
  • news sites where there are links only to press agencies or similar and with no proprietary editorial content,
  • other collections of unedited texts,
  • internet forums and social media platforms where the contents are essentially user-generated, and
  • map data, e.g. for navigation devices.

Affiliation privilege for foreign dividends

On this point the draft bill has complied with the ECJ judgement from 20.9.2018 (case: C-685/16), according to which the provision in Section 9 no.7 of the Trade Tax Act (Gewerbesteuergesetz, GewStG) is contrary to EU law. In the future, the affiliation privilege for foreign dividends under Section 9 no.7 GewStG will continue to allow the deduction of dividends for trade tax purposes in the case of shareholdings of at least 15% in corporations whose management and headquarters are abroad. The hitherto applicable restrictive preconditions for foreign corporations, especially the requirements for the gross revenues of subsidiaries and for the profits from second-tier subsidiaries, will be dropped. The discrimination between domestic (German) and foreign shareholdings as well as between EU and third country shareholdings will thus be eliminated.


Please note: The new regulation would apply from 2020. For the transitional period, the BMF had already mandated, on 25.1.2019, in the identical decree of the federal states, that the provision under Section 9 no.7 GewStG, to which the ECJ had objected, should not be applied to any of the open cases.

Tightening up of the treatment of share deals for real estate transfer tax purposes

The real estate transfer tax rules in the case of share deals are going to be tightened up. In particular, the shareholding limits in Section 1(2a), (3) and (3a) of the Real Estate Transfer Tax Act (Grunderwerbsteuergesetz, GrEStG), which are harmful from a real estate transfer tax point of view, will be reduced from 95% to 90% and the period in Section 1(2a) GrEStG will be extended to ten years in order to make arrangements for the avoidance of real estate transfer tax less attractive. A new Section 1(2b) GrEStG-E would cover changes of ownership at corporations in the same manner as has been the case with partnerships up to now. For both constellations, a transfer of at least 90% of the shares within a period of ten years would be subject to tax. There would be no requirement for the ownership stake as described above to be consolidated into a single holding.


Please note: The purchase transactions affected will be the ones that are realised after 31.12.2019.

Higher daily meal allowances

If employees work away from their homes or primary workplaces then, if they are absent for more than 24 hours, in future, they would be able to deduct € 28 (previously € 24) as work-related expenses. For the arrival day and the departure day and for more than 8 hours of absence (without an overnight stay) the allowance in each case would be increased from € 12 to € 14. Employers may reimburse an employee’s expenses at a flat rate in this amount free of tax. The changes would be applicable from 1.1.2020.

 

StBin [German tax consultant] Sabine Rössler

From: PKF newsletter 07-08/2019