Temporary reduction of turnover tax rates from 1 July 2020 to 31 December 2020
From 1.7.2020 to 31.12.2020, the VAT rates will be reduced from 19% (standard tax rate) to 16% and from 7% (reduced tax rate) to 5% as an essential part of the so-called second Corona Tax Assistance Act. You can find out everything important about this measure here.
1. The temporary change in the VAT rate
2. Execution of the turnover authoritative / incorrectly reported turnover tax
3. Individual questions
3.1 Advance payments
3.2 Permanent services, annual tickets, subscriptions
3.3 Construction works
3.4 Other special arrangements
3.5 Vouchers in value added tax law
3.6 Adaptation of long-term contracts
3.7 Special features in the gastronomy
The reduction of the sales tax rates from the previous 19% (standard tax rate) to 16% and from 7% (reduced tax rate) to 5% for the period from 01.07.2020 to 31.12.2020 is an essential part of the so-called second Corona Tax Assistance Act. The tax rate change also applies to import turnover tax. However, there has been no adjustment of the average rates for agricultural and forestry operations (§ 24 UStG) or for input tax flat rates (§§ 23 and 23a UstG).
The Federal Government is counting on companies to pass on the reduction in VAT rates to end consumers in the form of falling prices, thus triggering purchasing incentives that will boost the economy and relieve the financial burden on end consumers.
In principle, however, entrepreneurs are not legally obliged to reduce gross prices. Exceptions to this principle arise in particular in the case of fees for services which, in accordance with the concept of fees under VAT law, do not include VAT on the services. Such fee regulations are contained in particular in the Lawyers' Fees Act (RVG), the Tax Consultants' Fees Ordinance (StBGebV), the Cost Ordinance for Notaries (KostO) and the Fee Ordinance for Architects and Engineers (HOAI), which define net remuneration plus statutory VAT.
In all other respects, the civil law form of the fee agreement concluded with the customer is decisive. While in the retail trade, price marking with the gross price including the current VAT rate is common, purchase, rental, leasing, service and work contracts contain very different remuneration clauses. If, for example, a remuneration "plus statutory VAT" is agreed in these, the situation is clear. However, the situation is completely different in the case of remuneration clauses which, for example, assume a net or gross remuneration plus or including 19% VAT. Here there is a contractual need for clarification (supplementary agreement), especially if the contract does not contain a severability clause for an interpretation in conformity with the law. Furthermore, especially in the case of permanent services, such as tenancies, it should be remembered to adjust the so-called permanent invoices to the changes in value added tax.
If the service recipient is not entitled to deduct input tax and if the long-term contract concluded (i.e. concluded more than 4 months before the change in the law = before 01.03.2020) does not contain any provisions for compensating for an additional or reduced tax burden, it follows from § 29 para. 1 i. In conjunction with para. 2 UStG, it follows from § 29 para. 1 in conjunction with para. 2 UStG that the gross price is to be adjusted by the reduction in VAT if the delivery is made during the period of the temporary reduction in VAT. If the contract was concluded under otherwise identical conditions, but somewhat later (e.g. at the beginning of March 2020, i.e. less than 4 months before the change in law), this legal regulation does not apply; the agreed gross price does not change, the seller's profit margin increases by the VAT rate reduction not passed on to the buyer.
Irrespective of whether the gross price is adjusted or not; the temporary reduction in tax rates triggers considerable expense for all companies; e.g. cash register systems, online shops, invoicing and accounting programs must be adjusted within the shortest possible time, prices recalculated if necessary, price lists and price labelling revised.
The concrete implementation of the planned measures in detail poses considerable challenges for the companies and the consulting practice; the Federal Ministry of Finance (BMF) published a first, a second and a third draft of an application letter of 26 pages already on 11 June 2020, and thus even before the corresponding draft bill was even submitted to parliamentary consultation.
Below are some initial indications of problem areas in the concrete implementation of the temporary reduction in value-added tax:
Decisive for the accrual of the value added tax and the applicable tax rate is the time at which the service was performed. According to § 27 para. 1 UStG, however, the receipt of advance payments or payments on account is irrelevant for the final accrual of the VAT.
- Thus, if a delivery or other service provided in June 2020 is not invoiced until July 2020, a VAT rate of 7% or 19% is (still) to be invoiced.
- If, on the other hand, the service is rendered in the period July to December 2020, the reduced VAT rate of 5% or 16% must be invoiced.
Anyone who shows excessive VAT in their outgoing invoices owes this to the tax authorities in accordance with § 14c of the VAT Act, whereas the customer cannot claim the excessive part of the input tax paid, but only the legally correct VAT rate.
Due to the short term nature of the introduction of the law, the draft of the BMF application letter in section 3.12. provides in this respect that the tax authorities will not object to invoices from entrepreneurs to entrepreneurs (B2B) which were incorrectly invoiced in July 2020 at the old (higher) VAT rate (no liability according to § 14c UStG; full input tax deduction for the customer). However, this waiting period regulation should only apply in the B2B sector and only to invoices issued in July 2020.
Even completed partial services lead to the final accrual of a turnover tax; thus, successive partial services may be subject to different turnover tax rates - depending on the time of completion of the respective partial service. In order for a partial performance to exist, it must be an economically reasonable delimitable performance and there must be an agreement on the execution of the performance as partial performances. Furthermore, the partial performance must be accepted and invoiced separately. Here too, meticulous attention must be paid to the fulfilment of these requirements in order to avoid liability for turnover tax.