The document originates from the Bundessteuerberaterkammer (BStBK) and the Bundesverband der Deutschen Industrie e.V. (BDI). It was issued on March 7, 2025.
The purpose of the document is to propose reforms to the VAT procedural law in Germany. It aims to address existing issues related to the neutrality of VAT, ensuring congruent tax assessments among all parties involved in transactions, and to eliminate procedural deficits that lead to inconsistent tax treatments. The proposals seek to enhance the legal framework surrounding VAT to promote clarity, efficiency, and compliance, ultimately ensuring that the principles of neutrality and fairness in the VAT system are upheld.
- Neutrality Principle and Congruent Tax Assessment: The reform proposals emphasize the need for VAT neutrality, ensuring that tax assessments are congruent and consistent across all parties involved in a transaction, addressing current procedural deficits that lead to inconsistent tax treatments.
- Enhanced Procedural Instruments: The proposals include the introduction of binding information procedures, special determination procedures for VAT bases, and amendment provisions to ensure consistent tax assessments. These measures aim to reduce administrative burdens and prevent conflicting tax decisions.
- Cross-Border Cooperation and Direct Claims: The reform suggests implementing cross-border rulings and mutual agreement procedures to handle international VAT issues, along with establishing a direct claim mechanism for taxpayers to recover wrongly paid VAT, ensuring compliance with EU law and preventing unjust enrichment.
Source bstbk.de
Unofficial translation in English:
Table of Contents
- Problem Overview ………………………………………………………………………………………………… 4
1.1. The Neutrality of Value Added Tax ………………………………………………………………. 4
1.2. Requires Consistent Tax Assessment ……………………………………………………………. 4
1.3. Existing Procedural Deficit ………………………………………………………………………….. 4
1.4. Will Be Eliminated by Special VAT Procedural Law ……………………………………… 4 - Cases of Inconsistent Taxation ………………………………………………………………………….. 5
2.1. Threatened Neutrality – Conflicting Tax Assessments …………………………………….. 5
2.1.1. Taxable – Non-taxable ……………………………………………………………………………… 5
2.1.1.1. Example 1: Sale of a Business 1 ………………………………………………………………. 5
2.1.1.2. Example 2: Sale of a Business 2 ………………………………………………………………. 5
2.1.1.3. Example 3: Compensation or Service Exchange 1 ……………………………………. 5
2.1.1.4. Example 4: Compensation or Service Exchange 2 ……………………………………. 5
2.1.2. Standard Tax Rate – Reduced Tax Rate ………………………………………………………. 6
2.1.2.1. Example 5: Legal Binding Force ………………………………………………………………. 6
2.1.2.2. Example 6: Insolvency Proceedings Opened ……………………………………………… 6
2.1.3. Example 7: Late Input Tax Deduction ………………………………………………………… 6
2.1.4. Example 8: Standard Tax Procedure – Reverse Charge Procedure ………………… 6
2.1.5. Example 9: Standard Tax Procedure – Refund Procedure ……………………………. 7
2.2. Threatened Neutrality in Cross-Border Transactions ……………………………………… 7
2.2.1. Example 10: Deliveries ……………………………………………………………………………… 7
2.2.2. Example 11: Non-recognition of a Group by Another Member State ………….. 7
2.2.3. Example 12: Services ……………………………………………………………………………… 7 - Systematic Tax Burden – Violation of the Principle of Neutrality ……………………….. 7
- Existing Procedural Instruments ………………………………………………………………………. 8
4.1. Inquiries ………………………………………………………………………………………………………. 8
4.2. Amendment Provisions ………………………………………………………………………………… 8
4.3. Civil Law Tax Clauses ……………………………………………………………………………………. 8
4.3.1. Example: Business Sale …………………………………………………………………………… 9
4.3.2. Example: General Net Clause …………………………………………………………………… 9
4.4. Binding Effect Through Participation …………………………………………………………….. 9
4.4.1. Involvement/Joining ………………………………………………………………………………….. 9
4.4.2. Tax – Input Tax ………………………………………………………………………………………… 9
4.4.3. Group Holder – Group Company ……………………………………………………………… 10
4.5. Intergovernmental Agreements …………………………………………………………………….. 10
4.6. International Cooperation …………………………………………………………………………… 10 - Reform Proposals ………………………………………………………………………………………………. 11
5.1. Principle of Neutrality – § 23 Abs. 1 UStG-E ……………………………………………….. 11
5.2. Inquiry Procedure – § 23 Abs. 2 UStG-E ………………………………………………………… 11
5.2.1. Design of the Inquiry Procedure ……………………………………………………………… 11
5.2.2. Reduction of Administrative Burden ………………………………………………………… 11
5.3. Determination Procedure – § 23 Abs. 3 UStG-E ……………………………………………. 12
5.3.1. Detailed Design ……………………………………………………………………………………….. 12
5.3.2. Reduction of Administrative Burden ………………………………………………………… 12
5.4. Amendment Provision – § 23 Abs. 4 UStG-E ……………………………………………….. 12
5.4.1. Design of the Amendment Provision of § 23 Abs. 4 UStG-E ……………………. 12
5.4.2. Reduction of Administrative Burden ………………………………………………………… 13
5.5. Expansion of the Possibilities of Joining/Involvement ……………………………………. 13
5.5.1. Detailed Design ……………………………………………………………………………………….. 13
5.5.2. Reduction of Administrative Burden ………………………………………………………… 13
5.6. Implementation of the Direct Claim Developed in EU Court Jurisprudence ……. 13
5.7. Abolition of Full Interest on Corresponding Errors ………………………………………. 14
5.8. Understanding Procedure …………………………………………………………………………… 14
5.9. Introduction of a “cross-border ruling” ………………………………………………………… 15 - Conclusion ………………………………………………………………………………………………………… 15
- Legislative Proposal ………………………………………………………………………………………….. 16
Proposals for Reforming VAT Procedural Law
- Problem Overview
1.1. The Neutrality of Value Added Tax
The European VAT is designed as a multi-phase net sales tax with input tax deduction, meaning it behaves neutrally in the exchange of services between fully input tax deductible entrepreneurs. It is to be levied as a mass transaction tax, in compliance with the legal principles of proportionality and neutrality under EU law.
The tax that the service-providing entrepreneur pays to the tax office can be deducted as input tax by the recipient of the service.
Regardless of the number of value-added stages, VAT does not become a cost factor in the chain of entrepreneurs. It burdens only the end consumer, from whom the last entrepreneur in the chain collects the tax as an inseparable civil law component of the price and pays it to the tax office.
However, this neutrality is only guaranteed if it not only exists as a principle but is also reflected in tax assessments. This requires consistent tax assessments based on a uniform legal assessment of a factual situation for all parties involved.
1.2. Requires Consistent Tax Assessment
To procedurally guarantee the material legal principle of VAT neutrality, appropriate regulations are needed to ensure that VAT is assessed correspondingly for all parties involved in a transaction, thereby achieving neutrality in the outcome.
This applies to both the initial tax assessment and especially to the amended assessment, for example, following an audit by the tax office or a correction by the entrepreneur.
1.3. Existing Procedural Deficit
The procedural law of the General Tax Code, which rigidly focuses on the two-party tax liability relationship between the taxpayer and the tax creditor, is unable to adequately regulate the typical four-party relationship in inter-business service provision between the service-providing entrepreneur, their tax creditor (tax administration), the service-receiving entrepreneur, and their tax creditor (tax administration).
Since legal opinions regarding the assessment of a factual situation can also differ among the respective tax authorities responsible for the parties involved, procedural regulations are required that compel the tax authorities to align their legal opinions and correspondingly assess the tax for both the service provider and the service recipient, thereby achieving neutrality in the outcome.
1.4. Will Be Eliminated by Special VAT Procedural Law
There is no norm that procedurally links the tax assessment of the service provider with that of the service recipient. Although § 85 of the General Tax Code stipulates that the tax authorities must assess and collect taxes uniformly in accordance with the laws, sentence 2 of this norm particularly requires them to ensure that taxes are not […] unjustly collected or tax refunds and tax reimbursements are not unjustly […] denied.
However, there is a lack of provisions that correlate the tax assessments related to a transaction.
Thus, there is a need for statutory regulations that not only allow for neutral, consistent VAT assessments but also formulate it as a binding legal objective. VAT assessments must occur with respect to the principle of VAT neutrality.
The appropriate place for the procedural implementation of the EU law neutrality principle is the VAT Act, as the General Tax Code as purely national procedural law cannot meet the requirement for harmonized VAT law. This is suited to the free § 23 of the VAT Act, which, however, needs to be relocated from Section VI of the VAT Act: Special Regulations, to Section V of the VAT Act: Taxation.
2. Cases of Inconsistent Taxation
The following typical situations and the resulting consequences are intended to illustrate the regulatory deficits mentioned regarding the neutrality principle:
2.1. Threatened Neutrality – Conflicting Tax Assessments
2.1.1. Taxable – Non-taxable
2.1.1.1. Example 1: Sale of a Business 1
Entrepreneurs A and B assume that a non-taxable business sale in its entirety (GiG) exists according to § 1 Abs. 1a VAT Act. Therefore, the service provider A does not show tax on the invoice, does not report the tax, and does not remit it. Years later, the audit correctly finds that the conditions for a non-taxable GiG were not met, and the tax is assessed against A plus interest.
2.1.1.2. Example 2: Sale of a Business 2
A and B evaluate the case described in point 2.1.1.1. such that they do not assume a non-taxable GiG. A bills B for VAT, reports it, and remits it. The service recipient B claims input tax deduction. The audit finds years later that A and B misunderstood the conditions of the GiG, and such ultimately existed. The tax authority retroactively denies B the input tax deduction and assesses the tax differently plus interest.
2.1.1.3. Example 3: Compensation or Service Exchange 1
Entrepreneur U books a room with hotelier H for a net price of EUR 111.11, which he can cancel until 6 PM; otherwise, 90% of the overnight price will be charged (no-show fee). Check-out time is 12 PM the following day. U does not show up by 12 PM the following day. From 1 AM, H lets one of his employees stay overnight in the room. H invoices U for EUR 100 plus 19% VAT (since no accommodation of U occurred). U believes that only 7% VAT applies (due to § 12 Abs. 2 Nr. 11 VAT Act). The VAT auditor of U believes that it is genuine compensation and therefore no VAT applies.
2.1.1.4. Example 4: Compensation or Service Exchange 2
L and K agree to deliver a product for EUR 1,000/t product price. The variable costs of the product are EUR 500/t. K must take at least 1,500 t in year 01 to cover the annual fixed costs of the production facility of EUR 1 million for producing the product. However, K only takes 1,000 t of the product in year 01. Thus, after the end of year 01, L invoices K for EUR 500,000 with 19% VAT. K refuses to pay the VAT because according to his tax advisor, it is a case of “genuine compensation” and therefore does not constitute payment for a taxable service.
2.1.2. Standard Tax Rate – Reduced Tax Rate
2.1.2.1. Example 5: Legal Binding Force
Wholesaler G sells combination items to retailer E, which consist of a component subject to the standard tax rate and a component subject to a reduced tax rate. The retailer sells these to third parties. Both entrepreneurs assume that the item is subject to the standard/reduced tax rate overall. The taxation of the respective deliveries from G to E and from E to numerous customers (consumers and possibly also entrepreneurs) occurs accordingly. Years later, the audit correctly finds that the delivery, contrary to the parties’ assumption, is subject to the reduced tax rate/standard tax rate and partially denies E the input tax deduction/assesses the tax against G. The tax assessment at G or E is already legally binding. The customers are not specifically known.
2.1.2.2. Example 6: Insolvency Proceedings Opened
As before, but G and E assumed that the combination item is subject to the standard tax rate overall. G has paid the VAT to his tax office based on the standard tax rate. G is insolvent, and the determination of the quota will take years. The audit only allows E to claim the input tax deduction based on the reduced tax rate from the gross amount invoiced to G.
2.1.3. Example 7: Late Input Tax Deduction
Entrepreneur A does not regularly claim the input tax deduction for the VAT invoiced to him in the advance notification period when the legal requirements are first met but rather claims it late due to the internal invoice approval process within the company. Furthermore, A always claims the input tax deduction on the VAT billed to him by his customs representative Z only at the time of receiving Z’s invoice, even though the import duty notices issued to Z on behalf of A are always issued in the previous month. This is objected to and corrected during an audit. No correction is possible regarding the first assessment period that has expired.
2.1.4. Example 8: Standard Tax Procedure – Reverse Charge Procedure
Supplier B and contractor U have agreed that the supplier delivers ready-mixed concrete to a specific construction site and processes it with his own personnel. Contrary to this agreement, the concrete was only unloaded at the delivery site by personnel of the supplying company.
B and U mistakenly assume a reversal of the tax liability (reverse charge), because according to § 13b.2. Abs. 7 Nr. 3 Sentence 2 VATAE, the delivery and unloading of concrete by personnel of the supplying entrepreneur at the relevant location of the construction works constitutes a delivery but not a construction performance.
The supplier only invoices the net amount to his buyer while referring to § 13b VAT Act. The buyer reports the tax and claims the input tax deduction. Years later, the audit correctly finds that the delivery is subject to the standard tax procedure. The tax assessment for the service recipient has since become legally binding.
2.1.5. Example 9: Standard Tax Procedure – Refund Procedure
A foreign-based raw material trader R purchases a shipload of coal as an intermediary in a chain transaction and sells it to a domestic buyer. He receives the incoming invoice only in the following calendar year when he does not conduct any sales in Germany.
The tax office denies him the input tax deduction, as the standard tax procedure is not applicable due to the lack of sales in the following year. The Federal Central Tax Office denies the input tax deduction in the refund procedure due to a lack of reciprocity. His own delivery was properly taxed under the standard tax procedure.
2.2. Threatened Neutrality in Cross-Border Transactions
2.2.1. Example 10: Deliveries
The entrepreneur A based in Germany makes a delivery to the entrepreneur B, who is also based in Germany, who then delivers to the entrepreneur C based in France. A chain transaction in the sense of § 3 Abs. 6a Sentence 1 VAT Act exists. It is not definitively clarified who arranged the transport.
The tax office responsible for A qualifies B’s second delivery to C as the tax-free and moved intra-community delivery under § 3 Abs. 6a VAT Act, while the French tax authority qualifies A’s first delivery to B as such. Both authorities assume that their own decision is correct and that the other’s is incorrect.
2.2.2. Example 11: Non-recognition of a Group by Another Member State
The group company O1 based in Germany delivers to the group company O2, also based in Germany, and this one to an entrepreneur U based in another member state. O1 arranges the transport directly to U in the other member state. Due to the group, group O declares the intra-community delivery in the tax return and O2 in the summary report domestically. Accordingly, U declares the intra-community acquisition in the other member state.
The tax authority of the other member state declares the German group irrelevant for tax purposes in the other member state, as it only applies in Germany, and requires O2 to tax the intra-community acquisition and a subsequent taxable delivery to U.
2.2.3. Example 12: Services
A company based abroad provides its employee based in Germany with a company vehicle, which the employee also uses privately.
The tax authority responsible for the company abroad taxes the situation abroad, while the German tax office locates the place of performance according to § 3a Abs. 2 Nr. 2 Sentence 3 VAT Act in Germany.
3. Systematic Tax Burden – Violation of the Principle of Neutrality
All the examples shown illustrate the risk that, in transactions between entrepreneurs, VAT that would be materially neutral becomes systematically a final cost factor due to procedural reasons or burdens one of the two entrepreneurs with interest, without any liquidity disadvantage for the treasury or liquidity advantage for the entrepreneur occurring.
Legal remedies and appeal procedures lead to an enormous burden on administration, justice, and taxpayers. Additionally, there are significant legal enforcement costs. It therefore seems reasonable to shift the time for creating a corresponding tax assessment to a time before the initiation of the contentious procedure.
4. Existing Procedural Instruments
Current procedural law provides various instruments aimed at achieving a uniform assessment of factual situations. However, in the area of VAT, these are insufficient and cannot adequately ensure the neutrality principle due to the lack of a corresponding tax assessment.
4.1. Inquiries
The tax administration can generally issue a variety of inquiries, with formal inquiries (binding opinion according to § 89 Abs. 2 AO, binding commitment following an external audit according to § 204 AO, or inquiry opinion according to § 42e EStG) providing the greatest legal certainty for the applicant because they legally bind the competent authority (in favor of the applicant). Moreover, the tax administration can issue general, binding inquiries in the form of regulations, decrees, and BMF letters.
Obtaining a binding inquiry according to § 89 Abs. 2 AO cannot ensure the neutrality of VAT when multiple entrepreneurs are involved in a transaction. On the one hand, the issuance of the binding inquiry is at the discretion of the tax authority. The applicant thus has no legal claim to the desired inquiry but only to a decision free from discretion errors (cf. decisions of the Federal Fiscal Court, judgment of 29 February 2012 – XI R 11/11, DStR 2012, p. 1272; BFH, judgment of 22 January 1992 – I R 20/91, BFH/NV 1992, p. 562; BFH, decision of 9 January 2004 – VIII B 195/01, BFH/NV 2004, p. 758).
On the other hand, the tax authority can revoke or change the binding inquiry until the factual situation is realized with effect for the future (cf. § 2 Abs. 4 StAuskV and AEAO on § 89 AO, No. 3.6.6). Ultimately, the binding inquiry issued by the tax office to the applicant is not binding for all parties involved in the procedure. Rather, only the addressee/applicant of the binding inquiry can rely on the inquiry result. The other tax office may deviate from the legal assessment, which regularly leads to conflicting tax assessments in practice.
4.2. Amendment Provisions
Also, the numerous provisions for amending tax assessments (§§ 164, 165, 172 to 175 AO) cannot prevent the tax assessments for the service provider and the service recipient from differing. Corresponding tax assessments can at most be achieved through parallel procedures.
The amendment provision of § 174 AO regulates cases of conflicting tax assessments. However, the prerequisites for application in the area of VAT are regularly not met (cf. v. Streit/Streit, UR 2018, p. 813 ff.). The same applies to § 175 Abs. 1 Sentence 1 No. 1 AO, which only allows a separate determination of tax bases for VAT if multiple entrepreneurs execute or receive sales as part of a total project (cf. § 1 Abs. 2 of the Regulation on the Separate Determination of Tax Bases according to § 180 Abs. 2 AO – V to § 180 Abs. 2 AO).
4.3. Civil Law Tax Clauses
The parties involved in a transaction often regulate the legal consequences for the case of a later differing VAT assessment through civil law tax clauses. They agree on the legal consequences that are to apply if the jointly made assumption regarding the VAT assessment of the transaction is assessed differently by the competent tax office.
4.3.1. Example: Business Sale
The parties assume that the agreed service is a non-taxable business sale in its entirety under § 1 Abs. 1a VAT Act.
In the event that the tax office of the service provider treats the transaction as taxable and subject to tax:
- The service provider is entitled to additionally demand the tax amount as payment.
- The service provider is obligated to issue a lawful invoice.
- The service recipient is obligated to pay the tax amount additionally as payment.
4.3.2. Example: General Net Clause
The price is EUR 100 plus any VAT that may arise.
In the event that …,
- The service provider is entitled to demand the legally owed tax (as a civil law inseparable price component) in addition.
- The service provider is obligated to issue an invoice according to § 14 Abs. 4 VAT Act.
- The service recipient is obligated to …
Tax clauses do not affect the tax itself. They regulate between the parties civilly who bears the tax and to what extent. This applies particularly to the case where the tax, contrary to the legal system, does not remain neutral but instead presents itself as a cost factor, including for any incurred interest.
4.4. Binding Effect Through Participation
4.4.1. Involvement/Joining
According to § 360 Abs. 1, 3 AO or § 60 Abs. 1, 3 FGO, the tax authority or the fiscal court can, upon application (simple involvement/joining) or ex officio (necessary involvement/joining), involve or join others if their legal interests are affected by the decision under tax law or if third parties are involved in such a way in the disputed legal relationship that the decision can only be made uniformly towards them. § 174 Abs. 5 AO also provides an option for involvement/joining that is independent of the prerequisites of § 360 AO or § 60 FGO.
Legal interests under tax law are usually affected when a material legal provision creates a correspondence between two taxpayers. However, this material legal correspondence is regularly rejected by the tax authorities and fiscal courts in VAT law. If it is deemed applicable in a specific case, only simple involvement or joining is considered, which is at the discretion of the tax authority or the fiscal court.
Moreover, tax authorities can only be defendants in the fiscal court proceedings or join the proceedings according to established case law of the Federal Fiscal Court (BFH) and therefore cannot be joined themselves (BFH, judgment of 23 November 1972 – VIII R 42/67, BStBl. II 1973, p. 198).
4.4.2. Tax – Input Tax
A mutual dependency of tax and input tax within the framework of § 15 VAT Act has been recognized since the decisions of the ECJ in the cases of Genius Holding (ECJ, judgment of 13 December 1989 – Rs. C-342/87) and Schmeink & Cofreth and Manfred Strobel (ECJ, judgment of 19 September 2000 – Rs. C-454/98, DStRE 2000, p. 1166), so that both in the dispute of the service provider and the service recipient, simple joining is conceivable.
However, a court’s obligation for necessary joining according to § 60 Abs. 3 FGO is not triggered by this. Rather, this requires that third parties are involved in a disputed legal relationship in such a way that the decision can only be made uniformly towards them (BFH, decision of 27 December 2012 – V B 31/11; BFH/NV 2013, p. 944). The BFH states that this is not the case because the decision on the service recipient’s input tax deduction does not uniformly affect the service provider in such a way that it also decides on the existence of a tax obligation in their person (BFH, decision of 29 October 2002 – V B 186/01, BFH/NV 2003, p. 780).
4.4.3. Group Holder – Group Company
There is also only a narrow scope for involvement/joining in the area of groups. A joining of the group company in the fiscal court proceeding according to § 174 Abs. 5 AO is conceivable when the group holder requests a change of the VAT assessments such that the revenues and service receipts of the group company are disregarded in their taxation because the requirements of VAT group status are not met. This is only different if the interests of the group company cannot be clearly affected by the outcome of the pending legal dispute (BFH, decision of 25 March 2014 – XI B 127/13, MwStR 2014, p. 471).
The joining of the tax office of another person’s residence or the tax office of a service provider regarding a dispute over deductible input tax is not possible.
4.5. Intergovernmental Agreements
In the area of VAT, there are no intergovernmental agreements to avoid double taxation (DBA), which can be justified by the fact that, unlike income taxes, double taxation in VAT is systematically excluded. This is because a sale within the EU can only be subject to VAT at a single location.
Nevertheless, it sometimes happens that the harmonized law is interpreted differently in various member states and two states assert the right to tax for themselves. For such cases, no intergovernmental agreements are provided that lay out how procedurally the ultimately “correct” corresponding tax should be assessed for the service provider and the service recipient.
4.6. International Cooperation
There are no procedural regulations for amicably resolving cross-border situations.
5. Reform Proposals
In light of the outlined situations where taxation may violate the neutrality principle and the gaps in procedural instruments to avoid non-corresponding taxation, the following reform proposals have been developed.
These proposals are oriented towards the requirements of VAT law, partially build on existing procedural law instruments, and aim to close the existing gap in corresponding tax assessments.
The reform proposals foresee the implementation of a special VAT procedural law in § 23 VAT Act, which should be inserted into Section V of the VAT Act: Taxation.
5.1. Principle of Neutrality – § 23 Abs. 1 UStG-E
In § 23 Abs. 1 UStG-E, it should be clarified as a principle that VAT assessments must be made with respect to the principle of neutrality. The explicit mention of the principle of VAT neutrality as a legislative objective means that in cases where interpretation is necessary, this principle can serve as a guideline.
5.2. Inquiry Procedure – § 23 Abs. 2 UStG-E
The existing inquiry procedures should be expanded and adjusted to the specifics of VAT law by inserting a new § 23 Abs. 2 UStG-E.
5.2.1. Design of the Inquiry Procedure
The newly added provision of § 23 Abs. 2 UStG-E must allow that the tax office must issue an inquiry upon request from a party involved in a sale. The request should be able to be made both before (binding inquiry) and after the realization of the factual situation (binding commitment).
Any party whose tax assessment depends on the assessment of the factual situation should be eligible to apply. Furthermore, the other party involved should be included in the procedure. The tax office responsible for the taxation of the other party should also be involved for the purpose of reaching an agreement. If no agreement can be reached, a determination will be made. In this case, the fiscal court will decide.
The inquiry from the tax office or the decision of the fiscal court has binding effect for both the applicant and every party involved as well as the tax office of the involved party.
5.2.2. Reduction of Administrative Burden
By establishing a procedure for issuing a binding inquiry with binding effect for the parties involved and the tax authorities responsible for their taxation, corresponding taxation for both the service provider and the service recipient is ensured, and conflicting tax assessments are avoided.
An increased administrative burden is not to be feared. A one-time timely and final examination of both parties ultimately requires less effort than subsequent, contentious examinations and legal remedies that are independently conducted by the competent tax authorities. The forward-looking examinations allow for a reduction of information asymmetries based on a factual situation known to all parties involved, can promote a cooperative climate, and serve to achieve legal certainty.
Furthermore, the applicant must prepare the factual situation and the legal assessment according to § 1 StAuskV in a manner that minimizes the administrative effort.
5.3. Determination Procedure – § 23 Abs. 3 UStG-E
A separate determination procedure for VAT tax bases should be introduced in a new § 23 Abs. 3 UStG-E.
5.3.1. Detailed Design
A new § 23 Abs. 3 UStG-E could read as follows:
“VAT tax bases in the sense of § 1 Abs. 1 Nr. 1 and Abs. 1 a UStG as well as the determination of the tax debtor can be determined either upon request of an entrepreneur involved in the service exchange or ex officio, wholly or partially, when the tax bases or the determination of the tax debtor are assessed differently by the involved entrepreneurs and/or by a tax authority responsible for the assessment of VAT for the involved entrepreneurs (disputed factual situation). If the factual situation is only disputed between two entrepreneurs involved in the service exchange, the tax office of the service provider is responsible for the determination, or if the service recipient is the tax debtor for VAT, the tax office of the service recipient is responsible; in all other cases, the tax office where the application is first submitted is responsible.”
The aim is to achieve a binding decision in advance of a transaction to create legal certainty.
5.3.2. Reduction of Administrative Burden
An increased administrative burden is not to be feared, as the determination procedure will only be conducted in cases where the tax office or the parties involved in the service exchange have different legal opinions or a different assessment by the tax administration is feared due to differing jurisprudence. Such cases are currently contentious. A preliminary determination procedure should result in significantly lower personnel and cost expenditure for both the taxpayer and the tax authorities or the fiscal courts compared to a multi-stage litigation process with various tax offices.
5.4. Amendment Provision – § 23 Abs. 4 UStG-E
In addition, an amendment provision modeled after § 174 AO is needed to enable a corresponding tax assessment for the service provider and the service recipient based on the neutrality principle.
5.4.1. Design of the Amendment Provision of § 23 Abs. 4 UStG-E
A new § 23 Abs. 4 UStG-E could read as follows:
“If a different legal assessment of a factual situation compared to that at the initial tax assessment leads to an amendment of the tax assessment (e.g., according to §§ 164 Abs. 2, 172, 173 AO) and this other legal assessment of the factual situation results in a different legal assessment for one party involved in the transaction compared to the other party involved in the transaction, the tax assessment for the respective other party involved in the transaction must also be amended. The two tax authorities responsible for the tax assessment for the parties involved must reach an agreement on the legal assessment of the factual situation. In the event that such an agreement cannot be reached, the fiscal court will decide.”
5.4.2. Reduction of Administrative Burden
By introducing such an amendment provision, corresponding taxation for the service provider and the service recipient can be ensured, thus avoiding conflicting tax assessments. This eliminates the need to conduct two parallel procedures to achieve corresponding taxation.
Also, with this amendment proposal, an increased administrative burden is not to be feared, as a one-time timely and final examination of both parties ultimately requires less effort than parallel procedures among the different parties. By simultaneously assessing a factual situation for both parties, it is also ensured that the competent tax authorities start from the same factual situation.
5.5. Expansion of the Possibilities of Joining/Involvement
The possibilities for joining and involvement should be expanded.
5.5.1. Detailed Design
The provisions of §§ 360 AO and 60 FGO should be amended or § 23 Abs. 5 UStG-E should regulate that, ex officio or at the request of the parties involved in the sale, the other entrepreneur shall be involved or joined so that a decision can be made uniformly and correspondingly for both entrepreneurs.
The legal framework for the involvement or joining of the tax authority responsible for the other party involved in the service exchange should also be legally regulated.
5.5.2. Reduction of Administrative Burden
An increased administrative burden is not to be expected here either, as the factual situation will be decided once and bindingly for all parties involved. Therefore, only one uniform assessment for all parties will be necessary.
5.6. Implementation of the Direct Claim Developed in EU Court Jurisprudence
The fact that the proposed regulations to ensure the neutrality principle through corresponding tax assessments or a corresponding inquiry procedure with binding effect are not yet in place leads to numerous reversals of VAT collected contrary to EU law and consequently also to numerous service disruptions in the reversal process.
Such service disruptions in the reversal process may arise if the entrepreneur against whom the civil law claim for reimbursement of the passed-on VAT exists becomes insolvent or invokes civil law limitations. The latter will particularly be the case if their VAT assessment can no longer be changed due to tax law assessment limitations.
To avoid such disruptions in the reversal of VAT collected contrary to EU law, the economically burdened taxpayer – primarily the service recipient who is denied the input tax deduction – must be granted a direct claim against their tax office for the reimbursement of the VAT collected contrary to EU law. At the same time, it must be avoided that a double assertion of the reversal claim leads to an unjustified enrichment of the taxpayer, even if only to the extent of the insolvency quota. This can be achieved through a corresponding assignment of the reversal claim. § 27 Abs. 19 VAT Act can serve as a guideline for this regulation.
A new § 23 Abs. 6 UStG-E could read as follows:
“If entrepreneurs and service recipients assumed that the sale is subject to VAT in the amount shown in the invoice and this assumption turns out to be incorrect, so that the input tax deduction is denied to the service recipient for this reason, the service recipient is entitled to a direct claim to this extent. The direct claim must be asserted against the tax authority denying the input tax deduction. The service recipient is obliged to assign any reimbursement claim against the service provider in lieu of payment to the tax authority. The assignment is valid, especially regardless of whether the reimbursement claim is subject to objections or is affected by insolvency.”
5.7. Abolition of Full Interest on Corresponding Errors
Full interest on corresponding errors in tax assessments must be abolished. In principle, full interest aims to offset potential liquidity advantages on the part of the taxpayer gained through late (re)payment (BFH, judgment of 9 November 2017 – III R 10/16, BStBl. II 2018, p. 255; judgment of 2 July 1997 – I R 25/96, BStBl. II 1997, p. 714). Thus, the interest is not meant to sanction but to enforce the principle of uniform taxation (Draft of the CDU/CSU and FDP factions of a StRefG 1990, BT-Drs. 11/2157, AEAO on § 233a, Rdnr. 1). This applies in the area of VAT just as it does for income taxes.
However, no liquidity advantage exists in the examples mentioned above. If VAT is not paid and input tax is not deducted because the parties mistakenly and correspondingly assume a non-taxable event, neither liquidity advantage for the involved entrepreneurs nor liquidity disadvantage for the treasury arises. Therefore, a retroactive tax assessment plus interest in the case of denial of the input tax deduction until the possession of an invoice does not comply with the neutrality requirement. If the treasury is entitled to a tax of EUR 0.00 and tax in the amount of EUR 0.00 is assessed, there is no justification for collecting interest in either case of mistakenly assuming a non-taxable event resulting in non-taxation or mistakenly assuming a taxable event while simultaneously claiming input tax deduction.
Ultimately, neither the corresponding correct tax assessment nor the corresponding erroneous tax assessment leads to liquidity advantages or disadvantages, so interest should not be applied.
To clarify this, an appropriate exception from interest should be made in § 233a Abs. 1 AO:
Addition to sentence 2 of § 233a Abs. 1 AO:
“This does not apply … as well as for the assessment of a difference amount in the sense of paragraph 3 in VAT, insofar as for a service causing the difference amount against payment, either the service recipient is generally entitled to input tax deduction and the service provider has paid the VAT claimed as input tax to the tax office responsible for him or the service recipient is entitled to input tax deduction but has not claimed this input tax deduction.”
5.8. Understanding Procedure
For cross-border situations (within the EU), it is proposed to introduce a mutual understanding procedure for corresponding tax assessments in the affected member states.
The VAT Committee could serve as a model. The VAT Committee was established under Article 398 of the VAT Directive (MwStRL) to promote the coordinated application of the provisions of the MwStRL. Since it is a purely advisory committee with no legal powers, the VAT Committee cannot make legally binding decisions. However, it can provide some guidance on the application of the Directive.
A mutual understanding procedure to ensure corresponding taxation of cross-border transactions would, however, mean that member states would grant such a committee a final decision-making authority. The acceptance of such a procedure by member states could potentially be increased if the factual situation is discussed in the VAT Committee but is decided consensually by the representatives of the involved countries. If consensus cannot be reached, a decision of the ECJ could be considered.
In 2020, the European Commission already proposed an amendment to the MwStRL that would allow the VAT Committee to make binding decisions on the interpretation of certain issues of VAT law. The newly proposed Article 397a of the MwStRL already listed the topics for which the VAT Committee should be able to make binding decisions and also the topics whose interpretation remains reserved for the member states. The proposed amendment should bring more legal certainty for European companies and is therefore to be welcomed.
For more information: https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2020:0749:FIN:DE:PDF
5.9. Introduction of a “cross-border ruling”
Inspired by the EU model trial of the so-called “cross-border ruling,” a procedure for cross-border transactions could be established. According to this, taxpayers could request an official opinion (“cross-border ruling”) in advance regarding the VAT assessment of complex legal questions and receive a preliminary ruling.
The taxpayer would have to submit a request for a cross-border preliminary ruling to the competent tax authority and declare consent to the forwarding of their data to the tax authorities of the affected member states. Consultations between the competent authorities of the affected member states could then only take place at the explicit request of the taxpayer. While such a consultation does not guarantee that an agreed preliminary ruling will be issued by the affected member states, this procedure at least enables it.
For more information: https://ec.europa.eu/taxation_customs/business/vat/vat-cross-border-rulings-cbr_de
6. Conclusion
Current procedural law reveals gaps in the area of VAT and thus counteracts the EU law-based neutrality guarantee of harmonized VAT. In some areas of procedural and judicial regulations, there are already promising points of contact for adjustments to significantly reduce or eliminate these issues, which should be built upon.
It is urgently necessary to take up the presented reform proposals and firmly establish the neutrality principle procedurally.
7. Legislative Proposal
Addition to the VAT Act regarding specific VAT procedural provisions:
§ 23 UStG-E
Special VAT Procedural Law
Draft § 23 UStG-E Regulatory Purpose Reference
(1) Principle
VAT assessments are to be conducted with respect to the principle of neutrality.
Explicit mention of the principle of neutrality as a legislative purpose, so that in cases where interpretation is necessary, this principle can serve as a guideline.
(2) VAT Inquiry with Binding Effect for All Parties Involved in a Transaction
(Formulation in accordance with the General Binding Inquiry; binding effect not only for the applicant; involvement of the other tax office/the superior tax office)
Achieving a binding decision in the form of a binding inquiry prior to a transaction to create legal certainty.
Example 1
Example 2
(3) Separate Determination of VAT Tax Bases
VAT tax bases in the sense of § 1 Abs. 1 Nr. 1 and Abs. 1 a UStG as well as the determination of the tax debtor can be determined either upon request of an entrepreneur involved in the service exchange or ex officio, wholly or partially, when the tax bases are assessed differently by the involved entrepreneurs and/or by a tax authority responsible for the assessment of VAT for the involved entrepreneurs (disputed factual situation). If the factual situation is only disputed between two entrepreneurs involved in the service exchange, the tax office of the service provider is responsible for the determination, or if the service recipient is the tax debtor for VAT, the tax office of the service recipient is responsible; in all other cases, the tax office where the application is first submitted is responsible.
Achieving a binding decision in advance of a transaction to create legal certainty.
Example 5
(4) Amendment of VAT Assessments
If a different legal assessment of a factual situation compared to that at the initial tax assessment leads to an amendment of the tax assessment (e.g., according to §§ 164 Abs. 2, 172, 173 AO) and this other legal assessment of the factual situation leads to a different legal assessment for one party involved in the transaction compared to the other party involved in the transaction, the tax assessment for the respective other party involved in the transaction must also be amended. The two tax authorities responsible for the tax assessment for the parties involved must reach an agreement on the legal assessment of the factual situation. In the event that such an agreement cannot be reached, the fiscal court will decide.
Creation of an amendment provision to enable corresponding taxation for multiple parties or when the taxation in assessment-expired periods is affected.
Example 1,
Example 2,
Example 3,
Example 4,
Example 7,
Example 8,
Example 9
(5) Joining/Involvement
Ensuring that the other entrepreneur involved in a transaction and the tax authority responsible for them are involved in the inquiry, determination, appeal, and fiscal court procedure in such a way that both tax authorities can assess the respective tax in agreement and consistently.
Example 1,
Example 2,
Example 3,
Example 4,
Example 8,
Example 9
(6) Direct Claim
If entrepreneurs and service recipients assumed that the sale is subject to VAT in the amount shown in the invoice and this assumption turns out to be incorrect, so that the input tax deduction is denied to the service recipient for this reason, the service recipient is entitled to a direct claim. The direct claim must be asserted against the tax authority denying the input tax deduction. The service recipient is obliged to assign any reimbursement claim against the service provider in lieu of payment to the tax authority. The assignment is valid, especially regardless of whether the reimbursement claim is subject to objections or is affected by insolvency.
Implementation of the EU law-based direct claim while simultaneously avoiding enrichment through a (partial) double assertion of the reversal claim by the affected party.
Example 6
