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.
I. Changes regarding liability: New risks for foreign platforms
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.
II. New documentation requirements
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.
For more guidance and further support in holding available the requested information and diminishing the risk of being held liable we are happy assist.