Germany: 132. VAT Treatment Of Online Services

Last Updated: 4 April 1998
KPMG Germany Webpage
Click on the above link to visit the KPMG Germany webpage on the Mondaq website
For disclaimer and copyright see end of this article.

In article no. 89, we reported on the changes in the German VAT treatment of telecommunication services which took effect on 1 January 1997. In this article, we noted that the tax authorities were preparing to issue a directive clarifying the scope of telecommunication services and distinguishing this service category from that of so-called "tele-services."

1. Tele-services and telecommunication services

The tax authorities released their directive in late 1997 (DB 1997, 2403 - 18 Nov. 1997). As expected, the directive provides that tele-services are not identical to telecommunication services and hence are potentially subject to different VAT treatment.

Telecommunication services are defined as the transmission, emission, or reception of signals, writing, images, sounds, or information of any sort. They include providing transmission or reception capacity and providing access to communication networks including, among others, the Internet. The specific content of the services offered through communication networks is, on the other hand, a tele-service. Tele-services include such things as tele-banking, online weather and stock market information, and online advertising.

In terms of the new directive, most online service providers offer a mixture of telecommunication services (e.g. e-mail and Internet access) and tele-services.

2. VAT treatment of telecommunication services

Since 1 January 1997, telecommunication services constitute a specific VAT service category governed by sec. 3a (3) and (4) no. 12 UStG and sec. 1 (1) no. 2 UStDV. Telecommunication services provided by a company established outside the EU to German residents, whether taxable persons (entrepreneurs) or not, are generally subject to German VAT because they are deemed to be performed at the recipient's location, if the recipient is an entrepreneur, and where the service is used or exploited, if the recipient is a non-taxable person. For services rendered to taxable persons, the withholding or zero procedures will apply.

If the service provider is located within the EU, a location-of-recipient rule applies if the German recipient is an entrepreneur. If the German recipient is not a taxable person, the general location-of-provider rule applies.

It is assumed that, as a factual matter, telecommunication services cannot fall under one of the special rules of sec. 3a (2) UStG. Should the assumption not hold in some instance, these special rules would take precedence over those set forth above. The special rules are discussed briefly towards the end of section 3 below.

Similar provisions should have been put into effect in all EU countries. The change in the law is pursuant to a European Council Decision dated 17 March 1997 authorising Member States to enact the new telecommunication service rules in derogation of the 6th VAT Directive. The authorisation expires on 31 December 1999 unless a new directive on point is adopted and takes effect before then. For the period through 30 June 1997, transition rules applied to telecommunication service providers resident in other EU countries except France (see VAT directive of 29 April 1997 - DB 1997, 909).

There are suggestions in the literature that the derogation from the 6th VAT Directive may lack sufficient foundation in EU law (see Lejeune/Vanham/Verlinden/Verbeken European Taxation 1998, 2, 5).

The new rules do not appear very practical as regards the treatment of non-taxable persons receiving telecommunication services from providers established outside the EU. Such services are subject to German VAT if used or exploited in Germany. If a German private individual takes his laptop with modem along on vacation and uses it to send and receive e-mail, the resulting telecommunication service will be used or exploited wherever the vacationer happens to be at the moment. This location is not known to the service provider. In recognition of this problem, some EU Member States, though not Germany, have adopted rules deeming telecommunication services to be used in the recipient's country of residence (see p. 4 of above cited article by Lejeune et. al.). In practice, non-EU service providers would seem to have little choice but to charge VAT to non-entrepreneurs based on their place of residence.

3. VAT treatment of tele-services

Unlike telecommunication services, tele-services do not constitute a single service category for VAT purposes. Each tele-service must therefore be separately analysed to see which VAT rubric it fits into.

The directive of 18 November 1997 suggests that tele-services will often constitute one of the so-called "catalogue" services listed in sec. 3a (4) UStG. It cites the following catalogue services as possibilities:

i. Grant, transfer, and exploitation of patents, copyrights, trademarks, and similar rights (sec. 3a (4) no. 1 UStG);

ii. Advertising or public relations services including the services of advertising intermediaries and advertising agencies (sec. 3a (4) no. 2 UStG);

iii. Legal, economic, and technical consulting services (sec. 3a (4) no. 3 UStG);

iv. Data processing services (sec. 3a (4) no. 4 UStG);

v. Information services including information on commercial/industrial experience and processes (sec. 3a (4) no. 5 UStG).

Assuming the special rules of sec. 3a (2) UStG do not apply, the place of performance of these and other catalogue services is generally as follows:

  • At the recipient's location (place of operation or relevant permanent establishment) if the recipient is a taxable person (entrepreneur - sec. 3a (3) UStG);
  • At the recipient's location (domicile or legal seat) if the recipient is a non-taxable person resident outside the EU (sec. 3a (3) UStG);
  • At the provider's location (place of operation or relevant permanent establishment) if the recipient is a non-taxable person resident within the EU (sec. 3a (1) UStG).

If the special rules of sec. 3a (2) UStG apply, then the place of performance varies depending on the particular case involved. These rules locate the performance of services in connection with real property at the property site and situate intermediary services at the place of performance of the principal service. Artistic, scientific, educational, athletic, entertainment, or similar services, including the services of a program organiser, take place where the entrepreneur in fact carries out his activities. Work on movable tangible goods is also subject to special rules.

While many tele-services will be catalogue services, this need not be true in every case. The place of performance of non-catalogue tele-services follows the general rules:

  • At the provider's location (place of operation or relevant permanent establishment) unless the special rules of sec. 3a (2) UStG apply;
  • Otherwise, at the place stipulated by sec. 3a (2) UStG (see above).

4. Tentative conclusions

It is now relatively easy, in theory at least, to identify telecommunication services and to determine their proper VAT treatment. The services of online providers which are not telecommunication services may be lumped together under the heading of "tele-services." This is not a particularly helpful classification, however, since tele-services do not form a separate category under German VAT law. Each specific service must therefore be separately analysed to determine its VAT consequences.

Subject to certain exceptions, the general picture which emerges for providers of online services which operate from outside the EU is as follows:

  • Telecommunication services to persons resident in Germany will by and large be subject to German VAT whether provided to a German entrepreneur or not.
  • At least many tele-services to German entrepreneurs will probably constitute catalogue services and hence be subject to German VAT just like telecommunication services.
  • Most tele-services to German private persons will probably not be subject to German VAT, however, because they will be deemed performed outside of the EU at the provider's foreign location.

With respect to services rendered to entrepreneurs, consideration should be given to the implications of the withholding and zero procedures.

If both taxable telecommunication services and non-taxable tele-services are rendered, which is likely to be the case at least for online services to private persons, the fee paid must be divided into a taxable and a non-taxable part. Some online providers may be able to show separate charges on the monthly invoice for certain tele-services. However, in many cases the provider will charge a uniform overall fee. To the extent no specific breakdown is possible, the tax authorities state in their new directive that they will accept a reasonable estimate based on the percentage of total user time allocable to the various types of services. Although such a breakdown may sound easy, it poses considerable problems in practice because most online service providers are no in a position to measure and allocate with precision the total time which users spend in specific service categories.

While the new directive addresses the major issues in a general way, it remains to be seen what consequences the approach it outlines will have in practice.

Disclaimer and Copyright

This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. We in particular insist that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Please note the date of each article and that subsequent related developments are not necessarily reported on in later articles. Any claims nevertheless raised on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions