Tax Court Cologne, decision dated 16 February 2016, 1 K 927/13

According to a recent decision by the Tax Court Cologne, credits for pre-paid cards for cellphones are subject to German VAT even in case the credit forfeits because the given period of time to make use of the pre-paid card expires. This holds true for direct payments to the telecommunication service provider, and also in case the customer only acquires a voucher which can be used to recharge the pre-paid account of the customer with the telecommunication service provider.

The Tax Court Cologne argues that the decisive taxable services rendered by the telecommunication service provider are not the individual telecommunication services the customer makes use of such as calling, receiving calls, SMS, MMS and mobile data services. The Tax Court Cologne is of the opinion that the decisive taxable service rendered by the telecommunication service provider is the provision of access to a platform which enables the customer to make use of these individual telecommunication services.

With regard to the purchase of vouchers, the Tax Court Cologne argued that the purchase price for the vouchers is a taxable down payment. Down payments are subject to VAT if the supply or service rendered in the future is sufficiently specified at the moment the down payment is made. Therefore, the payment for a voucher is subject to VAT if the voucher may only be used to acquire one specific supply or service. The Tax Court Cologne came to the conclusion that the vouchers in the case at hand only serves the purpose to gain access to the telecommunication platform which - as outlined above - already qualifies as taxable service.

Alternative structuring and defense positions in an audit appear possible. It may also make sense to bring a different case to court. In our view the argument of the Tax Court Cologne is questionable. The provision of ‘the platform’ as such is rather not the service at issue. Assuming the credits could be used for different types of transaction (multi-purpose), even comprising not reduced rated sales. This could hardly be described as platform for ‘telecommunications services’. The court has not adequately commented on this point, even though the credits at issue appear to have been usable for different (even if all telecommunications-related) purposes, which may have given rise to different tax points.

The plaintiff has filed appeal against the decision of the Tax Court Cologne. It remains to be seen how the Federal Tax Courts decides.