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Economic stimulus package: Temporary reduction in sales tax rates

From July 1, 2020 to December 31, 2020, sales tax rates are to be reduced from 19% to 16% and from 7% to 5% with the aim of boosting domestic demand.

In view of the Corona crisis, the governing coalition agreed on June 3, 2020 on a comprehensive economic and crisis management package that comprises a total of 57 points. One of the measures contained therein, which has already received much attention and is controversially discussed, is the temporary reduction in sales tax rates, which is unique in the history of the Federal Republic of Germany.

We give you a brief overview of related issues below; a critical examination of tax systematic, political or economic aspects should not be connected with it.

Main content: Tax rate cut from 19% to 16% and from 7% to 5%

The reduction in sales tax rates should apply to all companies. There are no exceptions, either with regard to individual branches of the company or the content of individual sales. The reduction in sales tax rates is to apply from July 1, 2020 to December 31, 2020 and affects deliveries, other services, intra-community acquisitions and imports. A possible extension is not foreseen, at least in the outcome paper of the coalition committee.

The reduction affects the general tax rate (19% to 16%) and the reduced tax rate (7% to 5%). The related financial requirement is around EUR 20 billion. A corresponding law is to be passed as soon as possible; There is currently no draft law. In view of the short time until the planned entry into force of the measures, companies should deal with the need for adjustment now.

In general: Comprehensive testing and delimitation work required

Which tax rate is applicable depends solely on the time at which the service is performed (§ 27 UStG), not on the invoicing or the form of taxation (target or actual taxation). When this relevant point in time is justified, in turn, depends on the type of service in each individual case. A distinction must not only be made here between deliveries and other services, but also differentiated, for example, from so-called partial services in the sense of value added tax. It also depends on the content of the corresponding service, as can be seen from the example of the currently frequently used issue of vouchers (single-purpose or multi-purpose vouchers according to § 3 Paragraph 13 to Paragraph 15 UStG?).

The execution of the service is not to be confused with the question of the incurrence of sales tax. If, for example, advance payments or payments on account have been invoiced before July 1, 2020, the sales tax rate may have to be corrected in the final invoice. It is to be expected that the tax authorities will comment on the most important case groups within the framework of a BMF letter, as happened with the increase in the general sales tax rate on January 1, 2007.

Companies should start immediately to check the respective performance relationships and to map future changes in their internal processes, ERP systems and invoicing procedures (including the linking of automated tax accounts, etc.). The need for conversion is considerable in many places and will certainly be the focus of upcoming special sales tax audits and company audits.

In order to be prepared for inquiries from the tax authorities, appropriate documentation should be kept available for more complex and / or high-volume issues, particularly with regard to the question of when the turnover was carried out. Employees should also be trained accordingly and additions made to the tax compliance system.

Extract of virulent topics on the part of the service provider - "starting page"

The performing entrepreneur not only has to pay the sales tax correctly to the tax authorities, but also has to take it into account in the invoice statement. Otherwise he is liable for taxes that are too high according to § 14c UStG. There is a need for action here, especially in the case of so-called continuous services and thus often automated invoicing runs. This also applies if contracts are considered invoices for VAT purposes. Continuous services include rentals, leasing, maintenance, etc., as well as recurring deliveries (e.g. of vehicle parts, building materials). This makes the special need for delimitation clear.

Performing entrepreneurs should also check their contracts with customers to see whether there is a gross or net agreement. In principle, the margin of the performing entrepreneur is only higher with a gross agreement, because the sales tax to be paid to the tax authorities is lower if the remuneration claim is identical (with a remuneration claim of EUR 1,190, the entrepreneur no longer has to pay EUR 190, but "only" pay EUR 160 to the tax authorities). In the case of a net agreement, on the other hand, the sales tax will usually be variable (such as "[...] plus the statutory sales tax owed in each case") and thus have no effect on the profit. In this context, special attention must also be paid to price adjustment clauses, as they are often used in general terms and conditions.

If the legal agreements do not make a precise statement, an adjustment of the remuneration claim - to the detriment of the service provider - can also result from the little-known § 29 UStG, which standardizes its own civil law equalization mechanism. Providing entrepreneurs should therefore be clear about the amounts that can be invoiced, regardless of subsequent "goodwill adjustments".

To what extent can it affect the recipient of the service - "entry page"

Especially for companies (and consumers) that are not or only partially entitled to deduct input tax (such as banks, insurers, the public sector, health care, real estate), the lowering of the sales tax rate leads to an economic advantage. This applies to transactions that have already been concluded, at least if net agreements have been made. In this case, the services purchased will be cheaper if the sales are made after July 1, 2020. It is obvious that the access to services for the group of people in question should be postponed in order to achieve economic relief. Because if an input tax deduction is not possible, the sales tax is not "neutral" or just "transitory item".

In addition, service recipients should also check the price agreements with their contractual partner in order to reclaim any sales tax that has been overpaid. This shows once again that when it comes to sales tax, all parties involved must always be taken into account.

In addition, service recipients should pay particular attention to the input tax statement in invoices in the future. The amount of the input tax return (19% or 16% or 7% or 5%) depends on when the service was performed. The providing entrepreneur regularly makes the decision on this by deciding on the choice of the "old" or "new" tax rate. The input tax deduction is only permitted to the extent that it is applicable under sales tax law. Here, too, it is shown once again how important the temporal delimitation of the execution of the service is. If input tax was incorrectly shown too high and was included in the advance VAT return by the recipient of the service, it can be reclaimed later by the tax office.


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Tags: 16% 19% 5% 7% reduction in sales tax