Have the German VAT requirements for intra-EU sales returned to their roots?April 10, 2013
On 1 January 2012, provisions for the documentation required for intra-Community supplies were severely tightened. Following heavy criticism, a new draft of the VAT Implementation Ordinance has been produced, which aims to soften the impact of these stringent compulsory provisions.
In general, the draft amendments resemble the old provisions that applied until the end of 2011 much more than the new ones.
Under the German VAT law, an intra-Community supply of goods is exempt from VAT only if it complies with the requirements that the sale is supported by evidence from the supplier’s accounting records as well as by the delivery documents.
If the taxpayer cannot demonstrate that these requirements have been met, the German tax authorities will treat the intra-Community supply as a domestic supply, which generally is subject to German VAT. Thus, failing to comply with the documentation requirements bears the risk of additional VAT and interest payments.
Current requirements on documentation
The documentation requirements, as stipulated in the German VAT Implementation Ordinance, were tightened with effect from 1 January 2012 to the extent that the confirmation of arrival or entry certificate is the only possible evidence to support an intra-Community supply.
This confirmation of arrival requires that the recipient confirm the place and time of delivery and sign the document (if it has not been sent in digital format). According to the Ordinance, other substantiating documents, such as delivery or consignment notes, are no longer acceptable as proof.
However, after much criticism of these new rules, the Federal Ministry of Finance has issued a “safe harbor” rule that tax payers may invoke. It provides that the tax authorities will still accept substantiating documents under the legal provisions previously applicable until 31 December 2011.
However, this safe harbor rule will expire when the amended provisions are enacted, which is currently expected to be 30 June 2013. In essence, the new regulations will have no effect at all if the taxpayer chooses to use the safe harbor until the amended rules supersede the current tightened regulations.
Significant upcoming changes under the proposed amended rules
The most significant revision of the draft regulations is that confirmation of arrival is no longer the only possible proof for an intra-Community supply. However, the drafted German VAT Implementation Ordinance still views it as the main form of proof.
The confirmation of arrival document itself is not defined by a certain format but by certain items that have to be contained in it. It requires the following details:
- The name and address of the recipient
- The quantity and description of the goods according to custom and usage
- In most cases, the place and month of supply
- The date of issue
- The signature of the recipient or his delegate
This final requirement is waived if the confirmation of arrival document is transferred and received digitally.
In turn, the digital confirmation of arrival has to provide some indication that it stems from the recipient’s sphere of control. How this can be proven is not stipulated in the VAT Implementation Ordinance.
The supplier must ensure that the confirmation of arrival includes all the required information, especially the full address of the recipient and the place and time of delivery.
Care should also be taken to comply with the German Principles Concerning Data Access and the Auditability of Digital Documents— as is the case with all tax-related data that is transferred or created digitally. After receipt, the electronic confirmation of arrival must also be stored electronically in the original format.
Furthermore, a summary of batch confirmations is permissible if several separate deliveries are made to the same recipient. The new draft specifies that the batch confirmations may comprise all the deliveries made in a period of up to a quarter, but not longer.
We recommend that taxpayers who want to use batch confirmations should select the batch period on the basis of whether the taxpayer files its advance VAT returns on a monthly or calendar quarterly basis.
Other substantiating documents
Apart from the confirmation of arrival, other documents are permissible. For example, for dispatch deliveries, a dispatch voucher is sufficient. However, it must contain certain specified information, and it must indicate that the recipient has confirmed receipt of the item and the date of such receipt.
An exception for digitally transferred vouchers is not stipulated. However, any other document customary in trade is permissible to prove the intra-Community supply for dispatch deliveries.
If the proof is transferred digitally, a signature is not required. In turn, the digital confirmation of arrival has to provide some indication that it stems from the recipient’s sphere of control. If the item is transported by an independent courier service, the requirements for proving an intra-Community supply are met if the following documents are available:
- A written order (containing certain specified information)
- A record of the acceptance and delivery of the item (tracing protocol) prepared by the courier
Furthermore, the German VAT Implementation Ordinance specifies special documentation for:
- Items that are transported by a postal operator
- Excisable items
- Supplies of certain vehicles
Even if the tax authorities are to accept other forms of evidence under the draft amendments on the Ordinance, taxpayers should consider using the new confirmation of arrival document as primary proof as it may offer the advantage of increased legal certainty regarding the VAT exemption of an intra-Community supply.
It should be taken into account that the electronic confirmation of receipt, in particular, may be a practical and speedy means of proof.
This makes the confirmation of receipt not just a potential curse but also a potential blessing. It remains to be seen whether the German Federal Ministry of Finance will issue an interpretative letter that comments on the new rules and gives further guidance.
Under the current time schedule the amended regulations will become effective 1 July 2013, but we will keep our readers informed of further developments.
The full version of this article was first published in the Ernst & Young Indirect Tax Briefing, Issue 6, December 2012 (pdf, 4.96 MB)
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