12. September 2018
Often, German VAT is not properly declared and remitted by domestic and foreign entrepreneurs to the German tax authority if purchases are made via online marketplaces. In order to ensure compliance with national VAT provisions, the German legislator now wants to hold liable the online marketplace providers for VAT which is not properly remitted to the German tax authorities.
The introduction of this new liability regime is based on the idea that the operation of an online marketplace constitutes the risk that the VAT will not be properly remitted by the market participants. The draft of the German Annual Tax Act of 2018 includes a new liability provision in the German VAT Tax Code and extended recording provisions for operators of online marketplaces. On 1 August 2018, the German Federal Cabinet has passed the draft bill. Should the Act also pass the further legislative procedure in this present form, the provisions would enter into force on 1 January 2019. However, it is still unclear whether the liability of the online marketplace operators applies to transactions as of 1 January 2019 or also to transactions which have already been completed in 2018.
According to the draft bill, online marketplace operators shall be held liable if entrepreneurs do not declare VAT for deliveries which would be subject to VAT taxation in Germany and were “legally established” on the marketplace. According to the government’s justification of the draft bill, a delivery is “legally established” on an online marketplace if goods are offered and sales contracts concluded thereon. It does not matter whether the online marketplace operator is a located in Germany or abroad. Furthermore, the new liability regime does not distinguish between national transacations and cross-border transactions. In both cases, the online marketplace operator can be held liable for VAT which has not been properly remitted.
The liability can only be avoided by the operator if the operator complies with new documentation requirements. In this case the liability of the operator can only be constituted if the operator was aware or could have known (gross negligence) that the VAT has not been remitted properly.
For entrepreneurs, the information to be recorded includes:
(i) the complete name and postal address of the person delivering goods,
(ii) their tax number and, if applicable, their VAT identification number,
(iii) beginning and ending date of the confirmation of the entrepreneur’s tax registration,
(iv) the place of commencement of transport or dispatch and its destination, and
(v) the time and amount of revenue generated.
For private persons, the information to be recorded includes (i) the complete name and postal address of the person delivering goods, (ii) the time and amount of revenue generated and (iii) the date of birth.
The Central Federal Tax Office (Bundeszentralamt für Steuern) or the respective competent tax office will issue certificates to entrepreneurs confirming the information listed above under (i) through (iii). The certificate will be issued for a period of three years.
The Central Federal Tax Office will store the certificates. Upon request the online marketplace operators will be informed whether an entrepreneur has received the aforementioned certificate. For online marketplace operators it will be difficult to collect the date with regard to the individual transaction (date of delivery, etc.). Furthermore, it is unclear whether the Central Federal Tax Office is in the position to handle the registration process and the requests which will be filed by the online marketplace operators.
On 8 November, 2018 the German Federal Parliament passed the draft bill and on 23 November, 2018 the Federal Cabinet approved it. In contrast to the draft bill initially proposed, some amendments have been made. Furthermore, some regulations have been clarified. These inter alia affect the new liability regime and the new documentation requirements:
Online marketplace operators are still obliged to keep records of users who carry out transactions subject to a turnover obligation via their marketplace. However, the fiscal authority's responsibility in this context has been changed. Contrary to the initial proposal, it is not the Central Federal Tax Office but the local tax office responsible for the user that holds the certificate for the required information ready for retrieval and informs the applicant about the processing of the recorded data. The Federal Ministry of Finance is authorised to regulate the details of the data retrieval procedure, the processing and further processing of the data collected in this procedure and the data transmission procedure. Until the introduction of this data retrieval procedure, the certificates shall be issued on a transitional basis in paper form. These records have to be drawn by online marketplace operators and kept for ten years (instead of the originally planned six years).
The liability of online marketplace operators for unpaid turnover taxes of their users shall apply to legal transactions concluded after 28 February, 2019. However, for revenues of companies domiciled in Germany, the EU or the EEA, this only applies to legal transactions concluded after 30 September, 2019.
The promulgation of the draft bill will take place before the end of this year, wherefore the law will enter into force on 1 January, 2019.
For more guidance and further support in holding available the requested information and diminishing the risk of being held liable we are happy to assist.