Germany: 061. Changes In VAT Law As Of 1 January 1997

Last Updated: 20 March 1997
KPMG Germany Webpage
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While the VAT Revision Act of 1997 started out as part of the comprehensive 1997 Annual Tax Act, the decision was made in the autumn of 1996 to detach it from the larger piece of legislation and enact it into law right away so as to give the private sector more time to prepare for the changes it brings. Following ratification by the German Parliament (the Bundestag), the bill received the approval of the Federal Council (Bundesrat) on 8 November 1996.

The amendments contained in the VAT Revision Act of 1997 are intended to bring German VAT law into line with that of the European Union as a whole. The principal matters dealt with in the law are as follows:

  • Treatment of chain deliveries including intra-community triangular sales as a subset thereof
  • Introduction of the institution of the VAT fiscal representative
  • Place of performance of telecommunications services
  • Place of performance of work on moveable tangible goods
  • Tax exemption for so-called contract research of public institutions of higher learning
  • Repeal of the reduced VAT rate for certain agricultural products


A chain delivery transaction is one in which three or more taxable persons (entrepreneurs) enter into sales agreements with respect to the same goods in such manner that the first entrepreneur in the chain delivers possession of the goods directly to the last one. Under the previous system of sec. 3 par. 2 UStG, a chain delivery had as its consequence that the delivery to the last entrepreneur in the chain was deemed, as to both place and time, to constitute simultaneous delivery by each of the sellers in the chain to his respective buyer. This provision has now been deleted.

For intra-community chain deliveries inside the European Union, special provisions existed which in effect resulted in taxation "in accordance with the invoicing trail". This was accomplished by special rules for determining the acquirer and the place of acquisition contained in sec. 1a par. 1 no. 1 sentence 2 and sec. 3 par. 8a UStG. These were not in compliance with EU law and have been deleted.

The results under the new general rule governing the taxation of chain deliveries basically depend on the actual movement the goods. Chain deliveries are viewed as a series of supplies occurring sequentially (one after the other, as opposed to simultaneously) as to both place and time. The movement of goods is to be attributed solely to the delivery which involves shipment (dispatch) or transport of the goods by the seller or by the buyer. The place of this delivery is as a basic rule located where the shipment (dispatch) or transport begins. Deliveries which precede or succeed this "mobile" delivery (so-called "stationary deliveries") take place where the goods are located at the time of the respective stationary delivery. Stationary deliveries which precede the mobile delivery thus take place where the later transport or shipment begins. Stationary deliveries which follow the mobile delivery take place where the preceding transport or shipment ends. The provisions of sec. 3 par. 6 and 7 UStG have been modified accordingly.

These amendments are intended to bring German law on point into line with that of the other EU Member States.

For intra-community triangular sales as a specific subset of chain deliveries, simplified rules mirroring those laid down in Directive 92/111/EEC (amending the Sixth VAT Directive) have been enacted as new sec. 25b UStG. An intra-community triangular sale is one involving three taxable persons in different EU Member States. Under sec. 25b UStG, the first seller in the chain effects a tax-exempt intra-community delivery in the Member State in which the movement of goods begins. The intra-community acquisition of the intermediate buyer is deemed to have been taxed in the Member State in which the movement of goods ends and the delivery by the first buyer to the second (ultimate) buyer takes place in this Member State as well. The VAT on the second delivery, which comes after the movement of the goods, is owed by the second (ultimate) buyer. If all requirements, including various formal requirements, for a triangular sale are fulfilled, the tax liability of the buyer in the middle is imposed on the ultimate buyer. It is therefore no longer necessary for the intermediate buyer to register in the Member State where the goods have their destination. The ultimate buyer is permitted to deduct the tax owed on this delivery as input VAT if the standard requirements of sec. 15 UStG are met.


A foreign (non-resident) taxable person (entrepreneur) is a taxable person without domicile, legal seat, place of management, or registered branch within German domestic territory or in one of the territories listed in sec. 1 par. 3 UStG, e.g. in a free port. Such persons can now, at their option, appoint a German fiscal representative provided their supplies effected in Germany are all tax-exempt and that they are not entitled to any input VAT credit (new sec. 22a - 22e UStG).

The primary significance of a domestic fiscal representative is with respect to goods which travel through Germany (delivery term "customs and tax paid") on their way to another EU country or to a non-EU third country. The import of such goods is typically tax-exempt under sec. 5 UStG and their reexport is as a rule exempt under sec. 6, 6a UStG. Input supplies received by the importers are generally tax-exempt under sec. 7, 8 UStG. The advantage of a domestic VAT fiscal representative for non-resident importers of such goods is thus limited to having the fiscal representative attend to the administrative paperwork (filing VAT returns and Summary Reports).

Germany is the last country in the EU to introduce the fiscal representative into its VAT law. The provisions respecting fiscal representatives vary widely throughout the EU. In some Member States, the functions of a fiscal representative are, for instance, broader and can consist in handling VAT obligations for non-resident suppliers whose supplies in the respective country are not tax-exempt or who are entitled to claim an input tax credit in the respective country. In some Member States, appointment of a fiscal representative is obligatory in certain situations, not optional as under the new German scheme. The class of persons who can be appointed as fiscal representative also differs greatly from Member State to Member State.

A German fiscal representative may exercise, as if they were his own, all of the rights and must fulfil all of the obligations under German VAT law of his principal (the taxable person established outside of Germany).

The following persons are authorised to act as a fiscal representative: tax consultants (Steuerberater), tax agents (Steuerbevollmaechtigte), tax consulting companies (Steuerberatungsgesellschaften), lawyers (Rechtsanwaelte), certified public accountants (Wirtschaftspruefer), auditing companies (Wirtschaftspruefungsgesellschaften), sworn account auditors (vereidigte Buchpruefer), and account auditing companies (Buchpruefungsgesellschaften). Under certain conditions, domestic forwarding agents who provide assistance with regard to entrance duties or the excise taxation of goods in traffic between other Member States of the European Community may also function as fiscal representative, as may other commercial businesses (trade businesses) which provide assistance regarding entrance duties in connection with the customs processing.

Fiscal representation is only permissible pursuant to a power of attorney from the non-resident taxable person.


Under the prior law, the place of supply of telecommunications services was generally the location from which the service supplier operated his business. This meant that telecommunications services supplied by taxable persons resident outside of Germany were outside the scope of the German VAT law unless the services were effected through a domestic permanent establishment.

The special provision of sec. 1 UStDV (German domestic VAT implementation regulations), under which various services performed from non-EU third countries are under certain conditions deemed effected in Germany, was inapplicable to telecommunications services under the law in force as of 1 January 1997.

The place of supply of telecommunications services has now been shifted to the place where the recipient is established whenever the recipient is himself a taxable person (entrepreneur) or is resident in a non-EU third country. This is accomplished by a special provision adding telecommunications services to the catalogue of services in sec. 3a par. 4 UStG (so-called "catalogue services"). Accordingly, telecommunications services rendered from outside Germany to a German taxable person (entrepreneur) are subject to German VAT, which the German recipient must in principle withhold (reverse charge procedure). For telecommunications services to domestic non-taxable persons (non-entrepreneurs), a change made in sec. 1 UStDV likewise shifts the place of supply to Germany if the telecommunications supplier operates his business from a non-EU third country.

This amendment to German VAT law has been made in anticipation of the required amendment to the 6th Council Directive. The Member States of the European Union were authorised to introduce this amendment by the Commission, which acted at the suggestion of the Commission pursuant to identical requests filed by the Member States. The amendment to the 6th Council Directive is expected to be adopted on 1 April 1997.


The terminology of sec. 3a par. 2 no. 3 (c) has been changed to refer to "work on movable tangible goods" instead of "work services" (Werkleistungen) on such goods. The change is for purposes of clarification. Also intended to clarify, not to alter, the previous state of the law are the changes to the last sentence of this provision, which now provides that the place of supply cannot be shifted to the Member Country which issued the VAT ID number used by the recipient if, after completion of the work, the goods remain in the Member Country in which the supplier of the service performed all or the major part of the work.


An exemption has been introduced for supplies rendered by public institutions of higher learning in connection with research using third-party funds (so-called contract research) even though doubts exist as to the exemption's conformity with the 6th Council Directive. The new provision was regarded as defensible in light of the conflicting rules existing in the other Member States in this area.


Deletions have been made in the list of products contained in the enclosure to sec. 12 par. 2 nos. 1 and 2 UStG in order to eliminate effective 1 January 1997 certain tax reductions which were no longer permissible after amendment of the Council Directive of 25 June 1996.


Practical experience to date with the new provisions shows that the computerised processing of these transactions, compliance with documentation and reporting requirements, and general handling are all causing problems. Chain delivery transactions are a particular source of difficulty, especially when the chain includes more than three enterprises, at least one of which is resident outside the European Union. Such constellations can lead to significant liquidity problems. We strongly recommend devoting special attention to such transactions and consulting your tax advisors if necessary.

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.

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