At the beginning of June, the German federal government announced a Corona economic and crisis management package with a far-reaching, significant change in sales tax. For a limited period of six months, sales from July 1, 2020 to December 31, 2020 will see the sales tax rate reduced from 19 percent to 16 percent and the reduced sales tax rate from 7 percent to 5 percent.
Shortly before, a one-year reduction in sales tax for so-called restaurant sales from 19 percent to 7 percent had been announced in order to support the severely affected restaurant and catering industry. Politicians expect the sales tax measures to boost consumption. At the same time, it means a lot of effort for the entrepreneurs to implement all the necessary adjustments in a very short time. This gives rise to many questions, the most important of which are answered below:
Which companies are affected?
In principle, all companies in the trade in goods and services are affected that generate taxable and taxable sales in Germany at all standard tax rates, i.e. previously 19 percent and 7 percent, and that have to tax intra-Community acquisitions of goods or imports. This reduction of three or two percentage points could also be called the purchase premium for goods and services. The effort and burden that the necessary changes will generate for this short period of time will nevertheless be considerable for most companies. This affects above all the time, the organization and the personnel (also for training all interfaces in the company of the tax department and accounting for sales, purchasing) as well as the necessary system changes and thus initially generates costs.
What problems do companies expect?
The problems are caused by a double changeover on July 1, 2020 and back after December 31, 2020. As part of these changes, the accounting / ERP systems have to be adjusted, for example. This is not only limited to the creation of new control keys or tax accounts – the previous ones cannot simply be overwritten – but also includes adjustments to the determination logic regarding the timing of the service in the automated tax determination in the ERP system in order to be able to create correct invoices or credit notes. Cash registers, price markings and price lists as well as price agreements in contracts also have to be converted in a very short time and many delimitation questions have to be solved.
What are the biggest challenges and risks?
It is particularly important for entrepreneurial practice to resolve the delimitation questions that may exist for your business transactions and in certain constellations, and ideally to do the booking and invoicing as well as the declaration of sales to the tax office correctly before executing the first sales from July 1, 2020 . It is important for every entrepreneur to avoid VAT risks. These could arise, for example, from invoicing and transferring too much VAT as a service provider (invoice issuer) or from claiming too much input tax as a service recipient (invoice recipient).
Where do delimitation problems arise?
Delimitation questions exist, for example, when it comes to the provision of recurring services (long-term services, for example taxable tenancies, leasing). But also for sales that only take place during the period in which the tax rate is reduced, but are already settled with advance payments or advance invoices for deliveries and services that have not yet or not yet been fully implemented, i.e. before July 1, 2020.
How can the exact time for the application of the reduced tax rates be determined?
In principle, the point in time at which a delivery or service is carried out is decisive for the application of the reduced tax rates. For import sales tax rates, the time counts when the German import sales tax is owed. A delivery, for example, is deemed to have been carried out when the power to dispose of an item has been acquired and the economic ownership has passed to a customer (usually at the start of the transport of goods). Services are generally considered to be executed when they are completed. According to German law, there are special features for so-called work deliveries (delivery of material with assembly), permanent services or recurring services. Here it must be determined for the individual services when the service or a partial service is to be carried out in terms of VAT. Because only then can it be determined which tax rate will now apply.
Are there any special cases that need to be considered?
Yes, there are. For example, which tax rate applies to the issue of vouchers that are later redeemed for services? How about 19 percent of renting a locker for a whole year in advance or signing a hotline or maintenance contract for one year and invoicing in January 2020? What about spare part deliveries as part of a maintenance before July 2020 or if additional or reduced revenues are achieved above the residual value from the premature termination of car leasing contracts?