Implementation of quick fixes for VAT purposes in Germany

Bartłomiej BARTKIEWICZ
Junior Tax Assistant at RSM Poland

Karolina BARTKOWIAK
Tax Supervisor at RSM Poland

In early October 2018, the Economic and Financial Affairs Council of the EU adopted draft legislation introducing temporary solutions for settling cross-border transactions (known as “quick fixes”) for VAT purposes. They are supposed to be applied as of 1 January 2020 and stay in force until a new definitive VAT system has been adopted. In Germany, formal arrangements for implementing the EU regulations were launched on 8 May 2019 as a summary draft act including this year’s tax amendments.

VAT-EU IDENTIFICATION NUMBER

The “quick fixes” package introduces changes in the scope of the VAT-EU identification number. Once the new regulations enter into effect, the need for the vendor to have a valid VAT-EU number will also be a material prerequisite for recognising the supply as ICS and applying the 0% VAT rate. This used to be only a formal prerequisite so far, and even if this requirement was not met, it was possible to apply the 0% rate, provided that there was no doubt that the goods had actually been transported to another Member State. It should be noted at this point that the consequence of this change is the obligation to submit a true and complete VAT-EU recapitulative statement, as well. 

CALL-OFF STOCK

The package of changes covered by “quick fixes” also provides for uniform provisions on settling call-off stock transactions in the entire European Union. Until now, different Members Sates had different arrangements in place. In Poland, the call-off stock has already been used for moving goods (in a slightly different scope than the planned one, however), whereas in Germany the legal regulations required the vendor who transported goods to another Member State using the call-off stock arrangement to register for VAT purposes in the country of destination of the goods and to account for a domestic supply there. Any other solutions were possible only on the basis of individual arrangements with the local tax authorities. Following the introduction of “quick fixes”, it will no longer be necessary, which is going to make it a lot easier for businesses to operate on the EU single market.

SINGLE DEFINITION OF CHAIN TRANSACTIONS

In line with the new rules, the only intra-Community supply in a chain transaction, known as goods transport, shall be the supply made from the vendor to the first intermediary. However, if the intermediary provides the vendor with a VAT identification number issued by a Member State from which the goods are dispatched or transported, the supply made by this entity shall be deemed to be the goods transport. In other words, there will be a rule whereby a goods transport shall be the supply made between the vendor using the identification number of the country from which the goods are supplied and the purchaser using the identification number of country of destination of the goods. Under the Directive, the scope of uniform treatment of chain transactions shall be limited only to transactions concluded within the community of EU countries. In turn, the German legislator has decided to extend the applicability of these regulations to include chain transactions where the goods are supplied to third countries.

OTHER REGULATIONS

Along with the “quick fixes” package, the European Union has also adopted regulations under which countries most severely affected by tax fraud have an obligation to apply a reverse charge mechanism until 30 June 2022 for domestic supplies of more than EUR 17,500 per transaction. However, neither Germany nor Poland decided to implement such a solution.

What is more, e-books and online services in Germany shall have a reduced VAT rate of 7%. This will ensure that online publications are taxed in the same was as printed publications.

SUMMARY

It can most certainly be said that the changes brought by the “quick fixes” package are a very important step towards introducing the definitive value added tax system in the EU. Despite being transitional, these arrangements are going to ensure a substantive harmonisation of the settlement of intra-Community transactions and increased security. It should be remembered, however, that despite the harmonisation of the EU legislation, Member States have different ways of implementing the new provisions into their legal systems, and wherever the Directive leaves some room for manoeuvre, regulations adopted by different countries may differ from one another. Thus, the introduction and later application of the same EU provisions on “quick fixes” may look a little different in Poland and Germany. If you have any doubts about individual cases, we encourage you to contact us. Thanks to the close cooperation within the international RSM network, we are able to check all the necessary details very quickly.