Germany: 180. Selected VAT Developments

Last Updated: 10 August 1999
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.

1. Input tax credit for VAT incorrectly charged or overstated

The Federal Tax Court held in a 1998 decision (BStBl II 1998, 695) that VAT separately shown in an invoice may only be deducted as input VAT by the recipient of the related supply if the VAT shown is owed in fact. This means that the input tax credit is no longer available in particular in the situations covered by § 14 (2) UStG.

The Federal Tax Court based this aspect of its ruling on the case law of the European Court of Justice (decision of 13 December 1989, Genius Holding BV – UR 1991, 83). The tax authorities have issued two administrative orders in response to the Federal Tax Court decision (OFD Nuremberg, Vfg. of 16 November 1998 - DStR 1998, S. 1919; OFD Düsseldorf, Vfg. of 24 September 1998 - UR 1998, 479).

The decision marks a reversal of previous decisions in tax cases, which had permitted the recipient of a supply to claim the input tax credit regardless of whether the VAT invoiced was actually owed. The previous interpretation, now abandoned, had been accepted by the tax authorities (sec. 192 (6) (7) UStR) and the courts. It regarded the recipient's input tax credit for VAT separately invoiced as matched by the supplier's obligation to pay the VAT so charged to the tax authorities. The input tax credit was available even if the supply in question was in fact exempt from VAT or if the VAT owing had been overstated.

If the new decision is rigorously enforced, this means that a considerable new burden will be placed on the recipient of an invoice to verify the correctness of VAT charged. The recipient will in the future have to determine whether supplies invoiced are taxable at all (for example, the sale of a business will not be taxable), whether the supplies are tax free but VAT has been charged, and whether the proper VAT rate has been applied. It is advisable for a recipient who is uncertain as to the correctness of the VAT treatment to contest the invoice or at least withhold payment of the disputed VAT amount until the matter can be clarified.

In the situations covered by § 14 (2) UStG, it is always possible in principle to correct an invoice for purposes of the input tax credit as long as the VAT position for that year has not yet been finalised with the tax authorities.

In light of the new high court decision, it is no longer advisable for invoices to include VAT "just in case" in doubtful situations (for example, when one is uncertain whether the requirements for sale of a separate division of a business are met) on the assumption that the recipient will be able to recover the full amount of VAT charged as input tax and hence incur no additional net cost.

The Federal Ministry of Finance directive of 23 December 1998 (UR 1999, 83) states that the new decision is applicable to input tax credits claimed under invoices received by the addressee after 6 November 1998, the date of publication of the decision in the Federal Tax Gazette (Bundessteuerblatt).

2. VAT for so-called representation services

An administrative order of the Münster Regional Tax Office dated 2 July 1998 (UR 1998, 476) provides that various services provided by a group member company to its affiliates, such as information gathering, market observation, maintenance of customer relations, product consulting, etc., which are typically invoiced on a cost-plus basis, are generally to be treated as non-separable and hence constituting a single uniform supply which is taxable, pursuant to § 3a (1) UStG, where the supplier is established. This means that it is no longer possible to separate out services which are taxable where the recipient is located. We believe that there is serious doubt whether the view espoused by the tax authorities is correct when the services in question all fall under the list of so-called catalogue services (Article 9 (2) (e) services), which are taxable in principle at the recipient's location.

This administrative order is particularly significant for representation services provided to foreign affiliates unable to avail themselves of the VAT refund procedure because of lack of reciprocity.

It is therefore advisable to determine whether service agreements of the sort described are in place and, if so, to consider alternative structures.

The possibility can also not be ruled out that the separability of services may be rejected in the future with respect to other types of (intra-group) contracts. It is therefore advisable to assess the present situation for this reason as well. Regardless of this, documentation must be maintained in respect of all the services provided.

This decision could impact on clients who receive services from Germany which have previously been treated as Article 9 (2) (e) services, and therefore subject to the reverse charge in their own country. Besides the possibility of encountering difficulties in obtaining refunds of German VAT, these clients may have to negotiate with their tax authorities in order to cease accounting for VAT on the services by means of the reverse charge.

3. Documentary evidence for export deliveries and intra-community deliveries

Ruling on a motion to stay collection of tax, the Düsseldorf Tax Court has held that an entrepreneur must give notice of any necessary documentary evidence which is not in his possession at the time of filing of the monthly (or quarterly) and annual VAT returns. Should he fail to do so, export deliveries and intra-community deliveries which would otherwise be tax exempt must be treated as taxable (if necessary, the documentary evidence can be provided up to the last hearing in an action before the Tax Court contesting the assessment of taxes). The Tax Court furthermore noted that an entrepreneur may commit the administrative offence of reckless understatement of tax (leichtfertige Steuerverkürzung – § 378 AO) by failing to provide the required notice, provided the subjective elements of the offence are also fulfilled.

The Düsseldorf Tax Court relied on a decision of the Federal Tax Court of 28 February 1980 in which the high court had held that an entrepreneur who is not in possession of the necessary documentary export evidence but is able to provide evidence based on his own accounting records may anticipate the expected tax exemption by refraining from paying tax, provided he notifies the tax authorities that the documentary evidence is still lacking.

The decision of the Tax Court and the cited Federal Tax Court decision could be of considerable practical significance since there is generally a substantial delay before forwarding agents provide the documentary evidence to the entrepreneur. In many cases, entrepreneurs have in the past probably often not been in possession of the required documents at the time of filing of their monthly VAT returns, without giving notice of this circumstance. It should also be noted that the tax authorities may treat failure to give notice of missing documentary evidence as a reckless understatement of tax. In these cases, the reproach of reckless understatement of tax cannot be cured by completing the documentary evidence after the fact.

For further information, please send a fax stating your inquiry to KPMG Frankfurt, attn. Christian Looks +49-(0)69-9587-2262 or an e-mail using the button appearing below. Please state your name and organisation in all inquiries.

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. 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