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The tax exemption for certain services of Deutsche Telekom AG under sec. 4 no. 11a UStG (German VAT law) expired at the end of 1995. As a result, the telecommunication services of Deutsche Telekom have been fully subject to VAT since 1 January 1996.


For a number of years, Deutsche Telekom and its predecessor in interest, Deutsche Bundespost, have been selling electronic telephone cards which can be inserted in public telephones in Germany to pay for telephone calls. Card telephones have in the meantime largely replaced coin telephones in Germany. The card telephones automatically (without operator assistance) calculate the cost of each telephone call, whether domestic or international, and debit this amount from the original value of the card, which is somewhat in excess of the price printed on the card at which it is sold. When the card has been debited down to zero, it is discarded or recycled.

These telephone cards are in fact multifunction cards, however. In addition to paying for calls made from Germany, they can also in theory be used in other countries which have similar telephone systems. At present, such use is in fact only possible in the Netherlands, although many European countries have a card telephone system similar to Germany's. Moreover, the cards can be used in certain German cities to pay for parking or for public transport. It is conceivable that the scope of use of the cards may expand in the future.

The sale of a telephone card does not constitute the supply of either a good or a service within the meaning of sec. 1 par. 1 no. 1 UStG. Instead, the transaction is properly classified as the exchange of one means of payment, i.e. cash, for another means of payment, i.e. "electronic money". As such, the transaction is outside the scope of the VAT law. The buyer's economic motivation in purchasing this card is not to acquire control over the card itself, but rather to be able to use the card at a later time to pay for services of the sort for which the card is suitable (telecommunications, parking, transportation, etc.). Accordingly, it is impermissible to show VAT on bills or receipts for purchase of telephone cards.


A taxable person (entrepreneur) is permitted to deduct input VAT charged on services received provided such VAT is separately shown in an invoice within the meaning of sec. 14 UStG. For amounts up to DM 200 (invoice amount including VAT), it is sufficient to have an invoice which shows the gross amount (including VAT - A. 194 UStR). If an invoice is issued for services purchased using the electronic money stored on the telephone card, the recipient of the service is entitled to deduct the input tax shown, provided he is an entrepreneur receiving the service for purposes of his enterprise and the other standard requirements of sec. 15 UStG are met.

The problem is that no invoices are generated when a telephone card is used to call from a public telephone, and the bill received on purchase of the card itself is not acceptable for the reasons explained above. The problem could be solved if Deutsche Telekom in the future designed its public telephones to generate the required invoice at the push of a button, much as, for instance, automatic tellers in parking garages now generate an invoice showing VAT.

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