The German Federal Ministry of Finance (Bundesfinanzministerium, or BMF) has amended the VAT Application Guidelines following two decisions in which the Federal Fiscal Court (Bundesfinanzhof, or BFH) held that, under certain circumstances, direct supplies from another EU Member State to call-off stocks in Germany may be treated as a single supply of goods, rather than an intra-Community transfer of own goods followed by a domestic supply of goods, both carried out by the supplier of the goods, as was the general VAT treatment to date. Although the decree does not explicitly deal with non-EU and domestic supplies, it has implications for such transactions as well.
The BMF states the following: generally, if the customer is already “certain” at the time the transport of the goods starts in the other EU Member State, a direct supply of goods is in place which is deemed to be carried out at the time the transport begins in that other EU Member State. Such a direct supply is to be assumed if the customer has bindingly ordered or paid for the goods at the time the transport starts. According to the authorities, they do not object to the temporary storage of goods for a short period of time (some days or weeks) in a call-off stock or distribution warehouse established on the initiative of the customer who, in addition, has been granted the contractual right to access the goods without any restrictions. In such a case, the already initiated transport is considered to be interrupted for a short time but not discontinued. As was already stipulated in the VAT Application Guidelines, a customer is considered to be “certain” if the goods are transported to a warehouse in Germany and kept there until the customer has paid the supplier, who thereupon releases the goods (“shipment on hold”). As before, a customer is also considered to be “certain” even if the person in charge of the transport does not know the customer at the time the goods are handed over by the supplier but can easily and correctly ascertain the identity of the customer with sufficient reliability from the undisputed circumstances, such as documents.
The BMF clarifies that it is not sufficient if the customer is only likely to purchase the goods for lack of an actual purchase commitment at the time the transport starts. In such a case, as before, the transaction would be seen as an intra-Community transfer of own goods followed by a domestic supply of goods.
The principles of the decree amending the VAT Application Guidelines are applicable in all open cases. However, for supplies of goods and intra-Community acquisitions carried out before January 1st 2018, a VAT treatment in line with the former provisions will not be disputed – also with respect to the deduction of the corresponding input VAT.
As call-off stock scenarios are very often part of long-term business relationships, the decree should be read very carefully and in accordance with the BFH decisions to which it refers, due to the considerable impact a wrong VAT treatment may have. Further, the decree ought to be interpreted narrowly.
In case of any doubt, a binding ruling should be applied for, although this is possible only for scenarios that have not yet been implemented.
There should, in particular, be no doubt about the fact that the customer is ”certain” with respect to all supplies of goods in question – this ought to apply even if the basic agreement concerning the call-off stock is cancelled at a later point in time (meaning that the customer needs to take the existing stock). Even in cases where the goods are tailored to a specific customer’s needs and thus cannot be used by another person, a party will remain a “probable” customer until a binding purchase commitment is in place. Please note that the BFH has, in its decision, refused to even consider any matters related to the probability of purchase in this respect. This also implies that only a single customer may remove the goods from the stock – from a legal and, if at all possible, factual point of view. Please note that the BMF seems to assume a “certain” customer also upon settlement of payment; however, this possibility was not mentioned in the BFH’s decisions, so it is unclear to which scenarios this possibility pertains. As such, these scenarios should only be envisaged with extreme caution; in order to be on the safe side, payment should be combined with a binding order issued by the customer.
The fact that the goods are only to be stored for a short period of time seemingly indicates that only goods used for continuously ongoing manufacturing processes (as opposed to items subject to mere stockpiling) are covered by the new provisions. Therefore, particularly before the supplier envisages a deregistration in Germany, all circumstances should be carefully checked to confirm whether they require a registration even in future – as might be the case if additional items are transported to the call-off stock to provide replacements in cases where bindingly ordered items turn out to be defective.
The supplier as well as the customer should implement the new legal treatment in their ERP systems in a timely manner – particularly when the conditions are already met at present, in which case, both parties should bear in mind that the transition period is very short. It should be noted that the time at which the goods are removed from the stock is no longer decisive in direct supply cases, so that the applicable tax point for the supply may be preponed for up to several weeks. If self-billing invoicing schemes have been applied, they should be revised. The impact of the new treatment might likely alter the VAT treatment in the EU country of origin, since an intra-Community supply rather than an intra-Community transfer is in place. In addition, it may be worthwhile to check these matters with the VAT authorities of the country of origin, as it cannot be taken for granted that they are going to accept the new treatment without further ado.
Please note that the decree does not explicitly comment on domestic supplies of goods nor on supplies carried out from non-EU countries. As for domestic supplies, the preponement of the time of supply should be considered as well, so as to avoid incorrect invoice details concerning the date of supply as well as belated declaration and payment of VAT. As for supplies from non-EU countries, the preponed tax point may be of importance as well: if the goods have been Customs cleared for free circulation by the customer, the customer should normally be eligible for deduction of the import VAT as input VAT. Where the supplier acts as import declarant, the place of supply should normally be Germany, the supply should be considered as domestic supply subject to German VAT, and the supplier should be eligible for input VAT deduction.
Bundesfinanzministerium (Federal Ministry of Finance), decree of October 10th 2017, available at http://www.bundesfinanzministerium.de (in German only)
Bundesfinanzhof (Federal Fiscal Court), decision of October 20th 2016, V R 31/15, and of November 16th 2016, V R 1/16, available at http://www.bundesfinanzhof.de (in German only)
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