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Official Pronouncements Tax & Legal News October 13, 2011 2 referendum, especially as negotiation of similar treaties with other countries is underway or has recently been concluded. Agreement with Luxembourg on redundancy payments Germany and Luxembourg have agreed under the double tax treaty to follow the principle of taxing subsistence payments in the country of residence and remuneration payments in the country of employment. Redundancy and other payments on termination of employment – including those made under a “social plan” agreed with trade union and employee representative participation, compensation for loss of office and unemployment benefit – are to be seen as late remuneration for the former employment and thus as taxable in the state of employment. If the former employee taxed part of his earnings in the state of residence – because his work was deemed to have been partially performed there – redundancy and similar payments are to be split between the two states in the same proportion as the “active” income of the previous year. The agreement was signed on September 7, 2011, entered into force on the following day, and is to be applied to all cases still open. Equal split of transport crew earnings in Germany and Luxembourg Germany and Luxembourg have reached a mutual agreement under the double tax treaty on the right to tax the employment income of residents of one country working as lorry, bus or train drivers for an employer (or permanent establishment) resident in the other. The agreement also applies to drivers’ mates, conductors and other crew members. The day’s earnings are taxable in the state of residence if the entire day was spent on journeys in that state and/or in a third country. The taxing right falls to the country of the employer if the entire day is spent driving there. If the day is spent on journeys between the two countries, or between the state of employment and a third country, the taxing right for that day falls to the states of residence and employment in equal shares. The taxing right for days off (weekends, bank and other holidays) is split in the same proportion as the total pay for “active employment” during the year. Sick pay is taxed in the country in which the person is registered for social insurance. Journeys to and from work are not taken into account. The agreement was signed on September 7, 2011. It entered into force one day later and is to be applied to all cases still open. Electronic filing of accounts – a year’s reprieve Accounts in support of the tax returns must be filed electronically in XBRL format and adhering to an officially prescribed taxonomy for all business years beginning on or after January 1, 2012. The finance ministry has published a decree announcing the new taxonomy and declaring that no objection will be taken to businesses who continue to file their accounts in the traditional way (on paper and without adherence to the new taxonomy) for the first year of the new system. Permanent establishments have been granted a further reprieve – to business years beginning on or after January 1, 2015 – regardless of whether they are the German branch of a foreign corporation or the foreign branch of a German company (the accounts of the latter should show the treaty exempt foreign trading income). VAT reverse charge also for boards and cards With effect from July 1, 2011 wholesale sales of mobile phones and integrated circuits are subject to reverse charge VAT in a bid to curb “missing trader” and similar fraud involving deliberate non-payment of VAT whilst allowing the (possibly unwitting) customer the chance to recover the amount invoiced. The finance ministry has now revised its VAT Implementation Decree to follow the new statute. The decree extends the definition of „integrated circuit” to include complete boards and cards (such as sound and graphic cards), but is more restrictive when applying the turnover limit of €5,000. Only deals in excess of this sum fall to reverse charge. Repeat orders are not part of the same deal, even if they are informally placed as withdrawals from consignment stocks or call-downs within a framework agreement setting the overall terms of sale, However, if there is doubt as to the final value of the order (e.g. because of an adjustment clause in the agreement), no objection will be taken to reverse-charging the sale, provided both parties agree – and act – accordingly.
Tax & Legal News October 13, 2011 3 VAT-free samples On September 30, 2010, the ECJ held that the definition of a VAT-free sample should be based on its purpose, rather than on its nature (case C-581/08 EMI). Thus, an item given as a sample does not necessarily have to be distinct from corresponding items on display in retail outlets for sale to consumers. The finance ministry has just amended the relevant passages in its VAT Implementation Decree to follow the new definition. A sample is now a test item given for the sole purpose of enabling the recipient to assess the nature and quality of a product. It can be identical to a commercially available product where necessary for customer assessment, provided it is given in the interests of sales promotion. The object of a sample is to encourage the recipient (or others) to buy, not to save them from making a purchase. Intra-community supply exemption lost if customer concealed On December 7, 2010, the ECJ held that a German dealer in luxury cars sold to Portuguese dealers could not claim VAT exemption on the intra-community supply, because he had invoiced the deliveries to fictitious recipients. He was, in the circumstances, able to demonstrate delivery to Portugal, but, so the ECJ, had connived at the Portuguese VAT fraud of his customers by deliberately concealing their identity. This entitled the German tax office to levy VAT as though the sales had been made directly to private individuals. Later, the Supreme Tax Court relied on this case in taking the same stance in another case involving the sale of mobile phones by a German dealer to Austrian and Italian customers in the same beneficial ownership as his German supplier. The beneficial owner of the customers and the supplier had, in the meantime, been jailed for VAT fraud. If the German intermediary was an innocent party acting with all due care, his right to exemption on his intra-community supplies could not be denied. If he was not, he would lose the exemption, despite apparent adherence to the spirit of the regulations. The finance ministry has followed up on these two cases with a decree to the effect that intra-community supplies will not be exempt where the documentation and recording obligations have been breached and where the supplier has attempted to conceal the identity of the customer, thus allowing this person to conceal the acquisition in his own country. In such cases, it will no longer be open to the supplier to demonstrate actual intra-community delivery by other means. The case references are ECJ C-285/09 R judgment of December 7, 2010 and Supreme Tax Court V R 30/10 judgment of February 17, 2011. Retail financing compensation payments within the motor trade subject to VAT It is customary in the motor trade to offer retail customers instalment payment terms at a very low rate of interest, or sometimes even interest-free. The customer buys the car from the dealer and the finance is provided by a captive bank belonging to the manufacturer. The interest subsidy (the difference between the agreed charge in the instalment payments and the current market rate) is split between manufacturer and dealer in a manner set out in the dealer's franchise but of no concern to the customer. Manufacturer and dealer pay their respective shares to the bank. The finance ministry has declared that the payments are to be regarded henceforth as being for market support services, and are therefore to be subject to standard rate VAT. As it stands, the decree is to have immediate effect. However, no objection will be taken to continued treatment of the interest subsidies as VAT-free payments by third parties for financial services up to December 31, 2011, provided all parties involved take the same approach. Currency exchange is service for VAT In May 2010, the Supreme Tax Court held that a foreign currency exchange booth performed a banking service, rather than a delivery of goods, for VAT and that, in consequence, its VAT exemption was not dependent on adherence to export recording and documentation formalities. The finance ministry has accepted this judgment as a precedent in a recent decree, emphasising that it applies to exchanges of legal tender other than that dealt in for its metal value or for collectors. Sales of coins for their metal, or of notes and coins as collectors' items, continue to be regarded as sales of goods. The decree adds that the banking service of currency exchange does not restrict the input tax deduction for exchanges made in the ordinary course of other business. Hotels, shops, places of entertainment and other businesses accepting payment in foreign currency are the addressees of this latter point. The decree states that no objection will be taken to accounting for currency exchanges as sales of goods up to September 30, 2011. However, the tax exemption for sales of legal
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