Many companies underestimate the increasing requirements for the use of VAT identification numbers, which now also play a key role in intra-Community supplies and cross-border chain transactions. Find out here why companies should not be negligent in this field and how to answer certain doubtful questions correctly when dealing with VAT identification numbers. A letter from the Federal Ministry of Finance dated 18 September 2020 has dispelled some remaining doubts in addition to the VAT User Decree.
“Quick Fixes” in VAT with far-reaching legal consequences
The European Union has been trying for some time to further harmonise intra-Community trade and thus also to standardise VAT. With so-called quick fixes – immediate measures in the area of VAT – by the EU Commission, harmonisation measures already adopted on 1 January 2020 were also incorporated into German VAT law. Among other things, the conditions under which intra-Community trade is demonstrated have changed.
With these new regulations, the VAT identification number gained particular significance for consignment stocks and cross-border chain transactions, among other things. After all, the VAT exemption for all intra-Community trade depends on the correct use of the respective VAT identification number.
Still unnoticed by many companies today, a paradigm shift has taken place in the evaluation of the VAT identification number. Until the quick fixes, it was common opinion in European tax jurisdiction that the VAT identification number was only a formal-legal criterion. The exemption from the tax had not been made dependent on it under substantive law until then. For a long time, this also prevented effective data reconciliation in the European tax authorities.
In 2020, all this changed. The VAT identification number has become a prerequisite for VAT exemption for all intra-Community supplies. Without a valid VAT identification number and, above all, without its correct use, no tax exemption can be claimed. Another mandatory requirement is the correct copy of the recapitulative report, which must be submitted to us by the 25th day of the respective month to the German tax office.
Use a valid VAT number – what does that mean in detail?
Among other things, the quick fixes mean that companies have to check much more intensively whether they have valid VAT identification numbers from their trading and contractual partners. Anyone who relies on invalid or expired numbers must be prepared for subsequent VAT charges and even penalties. Since 2020, the VAT Act has required a valid VAT identification number for intra-Community deliveries, cross-border chain transactions and call-offs from consignment warehouses. This is a number that the buyer from the other EU country “uses” vis-à-vis the supplier. There have been doubts about the interpretation of the term “use” for a long time. Is it sufficient, for example, to refer to the VAT identification number that appears on a letterhead or in a credit form? Is the company on the safe side here with the tax exemption applied for? The VAT Application Decree clearly makes it clear that this reference is not sufficient. The term “use” presupposes active action.
Accordingly, the buyer of a product must have objectively made a declaration of his status as an entrepreneur and the entrepreneurial connection of the service. He must also declare the purchase of services in the recapitulative statement and provide a reference to the VAT identification number he uses in the invoice. In the case of a verbal contractual agreement, it is sufficient for the client to record the valid number.
Caution with VAT identification numbers in practice
Companies should proceed very carefully and carefully when requesting and documenting a VAT identification number from the contractual partner. The BMF letter of 18 September 2020 clarifies some practical aspects once again and also shows possible consequences of omissions with regard to the VAT identification number as well as omitted corrections in the drafting of the recapitulative report. Accordingly, it is also particularly important to request a further specific declaration from the recipient of the service when recording master data for the first time. The customer must confirm that the VAT identification number provided by him is to apply in the future to all individual orders following in the business contact. A simple automated transfer of master data, including VAT identification numbers, from existing data is therefore out of the question. There could be a considerable risk here, at least in the next tax audit. Companies should therefore definitely reposition the topic of VAT identification numbers.
Image source: Pixabay, Photographer: Free-Photos
The blog posts and articles are written by ICS adminservice employees to the best of their knowledge and belief, but do not claim to be correct or complete. ICS adminservice assumes no liability for this content. Individual expert advice cannot be replaced by the content.
Author
Claudia Herrmann
Marketing Consultant
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