On 22 December 2021, the German Ministry of Finance (German MOF) published the updated form for the preliminary VAT returns for 2021 along with the application form for the permanent filing extension and explanatory notes (see link). Preliminary VAT returns have to be submitted on a periodical basis (usually monthly or quarterly) and are, as the name implies, preliminary. The final numbers are to be reported in an annual VAT return after the end of the respective calendar year.
I. Updated VAT return form
The updates of the VAT return form include, in particular, the obligation to additionally and separately report the VAT base/VAT amount of partial or completely unrecoverable sales receivables/purchase liabilities (new boxes 50 and 37) and editorial or typographical changes. Mainly section I was partially reorganized putting the sections for almost all supplies subject to German VAT on top, followed by the purchases leading to a VAT liability of the recipient (intra-Community acquisitions and domestic/cross-border reverse charge purchases).
.It has to be noted that the newly included box 50 only requires the additional and separate reporting of the VAT base of regular domestic supplies where the total or part of the agreed sales price becomes irrecoverable (e.g. in case of bankruptcy of the customer) as codified in sect. 17 para 1 sent. 1, para 2 no. 1 German VAT Code (Art. 90 Council Directive 2006/112/EC). Additional and separate reporting means that the reduction of the VAT base due to partial or total irrecoverability has to be reported in the respective box for the relevant supplies (e.g. box 81 for regular supplies at 19%) thereby reducing the overall VAT payment or leading to a refund, and additionally has to be included in box 50 for information purposes.
Vice versa, the recipient of a supply totally or partly defaulting is obligated to adjust its regular domestic input VAT accordingly (sect. 17 para 1 sent. 2, para 2 no. 1 German VAT Code essentially implementing Art. 185 para 2 sent. 2 Council Directive 2006/112/EC) and has to report the VAT amount in box 37 separately and in addition to the actual reduction of regular input VAT in box 66 which decreases the overall input VAT amount of the period.
Therefore, the newly included boxes 50 and 37 only relate to the partial or total non-payment of regular non-exempt supplies/purchases subject to German VAT and do not include other types of adjustment (e.g. year end rebates or any other kind of sales/purchase price adjustment) and explicitly do not include any kind of changes of the VAT base/VAT amount of import VAT, intra-Community acquisitions and reverse charge purchases.
II. Remark regarding the reporting of domestic reverse charge revenues of telecommunication services
With effect from 1 January 2021, suppliers mainly (re-)selling telecommunication services are liable to pay the VAT where they receive such services subject to German VAT (domestic reverse charge, see Art. 12 no. 4 of the updates to the German tax law as decided on 18 December 2020). The German MOF notes that the supplier has to report such supplies in the existing box 60 and the acquirer has to account for the VAT in the existing boxes 84/85 and deduct the VAT in box 67 when being qualified.
III. Practical implications
As the German VAT legislation only requires VAT payers to report accumulated numbers in the VAT return (i.e. no line-by-line reporting such as it may be required where SAF-T reporting is obligatory), the additional reporting of the adjustment of the VAT base/input VAT amount as described leads to a little higher transparency for the tax authorities. In particular, it may be expected that the tax authorities will request additional information from VAT payers where high adjustments are reported in box 50 in order to substantiate whether or not the sales price is actually irrecoverable and if so, in what period. Also, the tax authorities will likely use this information to cross-check whether or not the respective recipient has adjusted its input VAT deduction accordingly.
In this respect, it has to be noted that it is in particular critical for suppliers to adjust the VAT base in the correct period (namely, the period where the agreed sales price becomes totally or partly irrecoverable) in order to avoid issues with statute of limitation. Statute of limitation may be an issue where, for example, a sales price became irrecoverable in a period that does not allow to account for any changes anymore but is only reported in the current period. In such cases, the tax authorities may not accept the adjustment of the VAT base in the current period and the reporting in the period subject to time limitation would not be possible. Consequently, a supplier would not get the expected VAT refund at all.
Since the point in time when an agreed sales price becomes irrecoverable is not stipulated in the German VAT legislation, the irrecoverability aspect has to be assessed on a case-by-case basis on basis of existing MOF guidelines and/or EU and German case law. Therefore, cases of irrecoverability of payments have to be made transparent within companies to enable the VAT function to critically assess whether or not irrecoverability for VAT purposes exists (VAT and general accounting/direct tax point in time may differ) and to account for the necessary reporting in the new boxes of the preliminary VAT return.
Author: Tim König
