In this blog post we summarize the effects of the temporary reduction of VAT rates from July 1 to December 31, 2020.

Background: On 3 June, the grand coalition announced that it would be lowering VAT rates in Germany from 19 and 7 percent from 1 July 2020 to 16 and 5 percent respectively in order to stimulate consumption - for a limited period until 31 December 2020.

In the meantime, there is also the view of the tax authorities on the application of this (planned) law - at least a draft of it.

Note: Every new law brings with it uncertainty, because it can never literally represent every conceivable fact that it concerns. For this reason, it has become established that the tax authorities, which ultimately have to interpret and apply laws uniformly throughout the country (§ 85 of the German Fiscal Code), present their views - often with the help of examples. The most important communication channel is the so-called BMF letters: In them, the federal and state governments present their interpretation of the law, to which the tax offices and customs authorities, among others, are bound.

However, there is not much surprising in the letter. There is no change in the system, which we explained immediately after the announcement of the draft law on 3 June.

No simplifications and transitional arrangements for online trade

The simplifications or transitional arrangements requested by umbrella organisations will not be implemented.

In particular, there will be a risk from the first day that traders will show an incorrect tax amount on their invoice from the due date and then have to pay this amount to the tax office.

  • Question: What's that all about?
  • Answer: Whenever an entrepreneur Value Added Tax shows an invoice, he has to pay it to the tax office - even if the invoice tool would Value Added Tax show 30 percent, e.g. due to an error.
  • Question: When will I no longer be allowed to show 19 or 7 percent on my invoices?
  • Answer: For any performance date between July 1 and December 31, 2020, we will return to the important concept of performance date in a moment.
  • Question: Do I have to create invoices at all?
  • Answer: Only if you supply to entrepreneurs or sell your products cross-border (B2B and B2C) in the EU - otherwise not.

What is the service date that is relevant for the changeover?

Shipping date, invoice date, returns: Which tax rate applies when?

As diverse as the system landscape in online commerce is, so diverse is the determination of the point in time of performance relevant for the temporary reduction of VAT rates.

We have been explaining for years that workarounds, in which e.g. the time recording of a delivery by the invoice date, order receipt, receipt by the customer, ... are wrong.

The time of a delivery in online trade is the point in time when it begins - e.g. when it leaves your warehouse or is handed over to the carrier.

For goods which customers return a few months later, you can get Value Added Tax back the one you paid for.

At what altitude? Of course in height of the then correctly led offValue Added Tax, as it also the diagram clarifies.

Example 1: Not to be confused with a return (return) is the exchange in the VAT sense (see paragraph 43 of the draft BMF letter). In this case, the customer returns the product to you and demands an economically new product - e.g. a tricycle instead of the previously delivered wartcar. In this case, when you send the tricycle, you make a new delivery, the tax rate of which is calculated according to the time of the (new) delivery.
Example 2: If the customer only requests a different colour of the wartcar in the 1st example, this exchange is irrelevant for VAT purposes. This case is likely to occur much more frequently in online trade than in example 1, which makes life much easier.

Which settings are now to be made in Financial Accounting?

Financial accounting and advance return for sales tax

Since the tax authorities cannot quickly convert the forms for the advance return for tax on sales/purchases and the Value Added Taxannual return, all transactions are recorded at 16 and 5 percent in a collective field. In the advance return for tax on sales/purchases, this is line 28 or key figure 35.

Since sales can be entered there at both tax rates (16 and 5 percent), you enter the net total in code 35 and the self-calculated Value Added Taxtotal in code 36.

No adjustment of the UStVA - everything in one key figure

In the context of current financial accounting, it appears that the market leader - DATEV, for example - is not introducing any new accounts. The standard accounts will then be used to automatically Value Added Tax calculate 16 or 5 percent for deliveries with a service date of July 1, 2020.

Note: You only have to be careful if you do not use any of the so-called automatic accounts. In this case you have to transfer the correct tax rate during posting (e.g. manually).

For this reason, you should document the recording, valuation and posting of deliveries during this period particularly well.

Note: At this point it becomes clear how important it is to determine the correct delivery date. Workarounds such as invoice date or order receipt, as used by classic to-DATEV converters, will lead to an incorrect tax rate. We have been pointing out this problem for a long time.

Future test field or will the tax authorities turn a blind eye?

... because, as stated at the beginning: the tax authorities have not communicated any significant so-called noncomplaint regulations within the framework of their published view.

It is therefore absolutely conceivable that this period or this change in the law will be a future testing ground within the scope of tax audits and Value Added Taxspecial audits.

The at first glance pragmatic to casual solution of reporting all revenues to the tax office within the framework of a key figure is bought at an additional expense and the associated risk on the part of the taxpayer.

Taxdoo is the Compliance platform for the digital economy

... and provides the leading online retailers in Europe with numerous other compliance services via a unique platform in addition to the handling of ongoing Value Added Taxcompliance, Intrastat and financial accounting (Taxdoo is a partner of DATEV).

If you would like to know more about how you can achieve Value Added Taxcompliance, financial accounting and much more efficient and secure via one platform then use this link to book your individual and free initial consultation with the compliance experts from Taxdoo!

You are also welcome to register for our regular demo webinar in which we will introduce Taxdoo and our compliance services and answer your questions personally.

P.S.: Taxdoo has been an official partner of DATEV in online trading since the beginning of 2020.