091. Correct VAT ID Number As Requirement For Tax Exempt Intra-Community Delivery

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In article no. 7 and again in article no. 56 we reported on the necessity for the supplier of an intra-community delivery to record on his books a valid VAT ID number for his buyer in order for the exemption of sec. 4 no. 1 (b) UStG to apply. Taxpayers were for this reason advised to apply to the Federal Finance Office in Saarlouis for verification of VAT ID numbers at least in connection with questionable or important transactions (cf. sec. 18e UStG).

In denying a taxpayer's motion for a stay of execution of his tax assessment pending the outcome of his court appeal, the Federal Tax Court has treated recordation of a correct VAT ID number as a material requirement for the exemption of sec. 4 no. 1 (b) UStG (BFH UR 1997, 224 - 2 April 1997). The legal basis of the decision is sec. 6a par. 3 UStG in conjunction with sec. 17c par. 1 UStDV (VAT implementation regulations).

The taxpayer in question was unable to qualify for the exemption on the basis of a good faith error (sec. 6 par. 4 UStG) because he had delivered goods worth several million marks to a first-time business contact in another EU country without verifying the ID number or certain other incorrect information provided to him. The Court found that he had failed to use the care expected of a prudent businessperson. Use of due care is necessary to qualify under the good faith exception.

The Court went so far as to question, but not decide, whether the good faith error exception of sec. 6 par. 4 UStG could ever apply to situations in which the taxpayer has failed to record his buyer's correct VAT ID number. The Court considered that the weight of scholarly opinion was against applying the good-faith exception to such cases.

Intra-community deliveries are exempt from VAT under sec. 4 no. 1 (b) UStG. The legal definition of an intra-community delivery requires among other things that the transaction constitute an intra-community acquisition and hence be subject to VAT for the recipient in another EU Member State (sec. 6a par. 1 no. 3 UStG). This is only guaranteed if the buyer is using a correct name, address, and VAT identification number (ID number).

If a German entrepreneur incorrectly treats an intra-community delivery as free of VAT although certain requirements are not fulfilled, the VAT exemption in Germany arguably nevertheless applies provided the entrepreneur can show that he used due care in making the incorrect determination (sec. 6 par. 4 UStG). As the case here reported on makes clear, the seller cannot fulfil the duty of due care merely by relying on the data provided by the buyer.

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