Many subcontractors – particularly those in the automotive industry – supply their goods and materials by means of so-called call-off stock. If the stock is supplied from another EU member state, the German tax authorities generally treat the corresponding movement of the goods as intra-Community transfer followed by a domestic supply of goods. The Federal Fiscal Court (Bundesfinanzhof, or BFH), in a recent decision, has rejected this opinion – however, only under certain conditions, which are not yet fully clear to date.
The claimant supplied his customer from Spain. The goods were put into a consignment stock in Germany; the Storekeeper was commissioned by the claimant. The supplies were carried out based on supply contracts with provisions about the goods to be supplied, the prices and the terms of delivery and payment. However, the concrete quantities of goods as well as the supply dates were determined by delivery schedule plans that were considered to be a legally binding conclusion of a purchase contract. The customer had the right of unrestricted access to the supplied goods. It was established that some 95% of the goods were dispatched from Spain to Germany based on such delivery schedule plans. The supply contracts stipulated the place and the time at which both the title of the goods as well as the risk of accidental loss were to be transferred. However, the customer was to be held responsible for damages caused by the Storekeeper. If the order for the goods was cancelled, the customer was obliged to pay for the ordered goods already put in stock.
In Brief, the BFH held that the supplies were considered to be direct supplies of goods from Spain to Germany, since the customer was already fixed at the very start of the dispatch from Spain. the BFH established that, under circumstances such as those of that proceeding, a short break in a stock would not be decisive.
For many subcontractors, this BFH decision could contribute to substantial VAT compliance and cash flow relief, as the current VAT Treatment applied by the tax authorities generally requires a registration of the subcontractor for VAT purposes. Since call-off stock supplies are as a general matter performed in the scope of long-term businss relationships, any incorrect VAT treatment can (apart from possible exposures with respect to criminal prosecution) lead to subsequent payments of substantial VAT amounts that may, under general conditions, be subject to considerable interest.
The BFH’s decision mentions numerous details of the supply contracts concluded between the parties, and it is not fully clear whether all these clauses were considered to be conditio sine qua non. In Addition, the time of the interruption of dispatch of the stock must be considered . The “short period of time” mentioned by the BFH might refer to the fact that the “demand for goods as required by the customer’s production for the coming days and weeks” was to be met. However, the circumstances of the decision provide that the delivery schedule plans included approvals for no fewer than twelve weeks in advance. At least it seems to be clear that a “short” interruption is not restricted to a few days but rather to one week or a couple of weeks.
Please note that the dispatch of goods without a fixed customer will attract the VAT treatment as applied by the German tax authorities, which means that they will as a general matter cause an obligation to register in Germany. This means that goods shipped, eg, on the Basis of a mere forecast of demands for materials will very probably not alter the customary VAT Treatment. The BFH, in Connection with the 5% supplies not carried out on a Basis of a binding delivery schedule plan as described above, mentions that the customer must be fixed, and that the dispatch of goods to a Person who is only likely to be the customer would be insufficient. in practice, the decision may be applied for stock accessible to a single customer only (as opposed, eg, to stock accessible to several members of a company Group).
In any case, for the time being, the decision must be applied with great prudence and with a view to all the Details of the circumstances on which the said decision was made. As the tax authorities have not yet revised their opinion on this matter, it is strongly recommended to apply for a binding ruling in advance, so as to reduce the above-mentioned substantial exposure in place if it later turns out that the hitherto VAT treatment would have to be applied.
Supreme Tax Court decision V R 31/15 dated October 20th, 2016, available at www.bundesfinanzhof.de (in German only).
I you have any questions, please do not hesitate to contact my colleague Frank Gehring, Partner PwC Germany on +49 211 981 2771 or firstname.lastname@example.org.
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