Task Force “The Unknown Taxpayer – U.S. Companies with Electronic Services in Germany” at the Tax Investigation Office in North Rhine-Westphalia
I. Task Force at the Hagen Tax Office
The tax investigation authorities in North Rhine-Westphalia are currently conducting systematic investigations to uncover U.S. companies that provide electronic services via the Internet or apps to German non-entrepreneurs but are not registered for VAT purposes in Germany with the Bonn-Innenstadt tax office responsible for U.S. companies and thus do not subject the services to German VAT.
To this end, a further task force was set up at the Hagen Tax Office for Criminal Tax Matters and Tax Investigation – in addition to the existing task force for real estate acquisition tax, which is operating with considerable investigative success – to investigate corresponding US companies that have not yet been registered for VAT purposes in Germany. It has already obtained extensive data from publicly available sources and is currently evaluating it.
If the evaluations reveal that companies have performed such services but have not declared and paid the German sales tax due on them to the tax office, it must be assumed that, in addition to the taxation proceedings, criminal investigations or fine proceedings will be initiated on suspicion of tax evasion and/or breach of supervisory duty pursuant to Section 130 OWiG.
This primarily affects U.S. companies that provide electronic services to German private individuals. In principle, however, all foreign companies that provide electronic services to German private individuals but are not registered with a German tax office for VAT purposes are likely to be the focus of the German tax authorities.
II. Background under value added tax law
If digital products are made available by granting access on the Internet or sold for downloading via the company’s own websites or freely accessible online marketplaces, these are so-called electronically supplied services for VAT purposes. According to § 3a para. 5 S. 2 No. 3 UStG, this includes services that are provided via the Internet or an electronic network, including networks for the transmission of digital content, and whose provision is highly dependent on information technology due to the characteristics of the other service; i.e., the service is essentially automated, is provided with minimal human involvement, and is
would not be possible without information technology (section 3a.12 paragraph 1 UStAE).
These include, for example, apps, e-books, online publications, hosting and streaming offers, online courses, databases or the provision of images, texts, films or music via the Internet.
The provision of these electronic services for consideration by foreign entrepreneurs to German non-entrepreneurs is subject to VAT in Germany.
Distribution via own websites
If these electronic services are provided to non-entrepreneurs (in particular private individuals) in Germany via their own websites, the foreign service provider is liable for German VAT and must register for VAT in Germany and declare and pay the German VAT on the electronic services to non-entrepreneurs in VAT returns.
Distribution via online marketplaces
Until December 31, 2014, this also applied to electronic services provided to non-entrepreneurs in Germany via an online marketplace. In these cases, too, the foreign entrepreneur was subject to registration in Germany and had to register and pay German VAT for services provided electronically to German non-entrepreneurs via online marketplaces until December 31, 2014.
Services provided electronically by foreign traders via online marketplaces as of January 1, 2015, are subject to the taxation pursuant to Section 3 para. 11a UStG is defined by the statutory fiction of the inclusion of the marketplace operator in the service relationships as other services to an entrepreneur subject to VAT within the meaning of Section 2 UStG (online marketplace operator). Accordingly, the foreign supplier is no longer required to register for electronic services provided as of January 1, 2015, which it provides to an online marketplace operator, which in turn provides these services electronically to non-entrepreneurs in Germany. If the online marketplace operator is domiciled in Germany, the service is subject to VAT in Germany and the online marketplace operator rather becomes liable for German VAT on the electronic service provided to it by the foreign supplier. This does not apply if the provider of the electronic service is expressly named as the service provider by the marketplace operator and this is expressed in the contractual agreements between the parties.
In summary, it can be stated that foreign companies that provide other services electronically to non-entrepreneurs in Germany for consideration owe German VAT on the services provided and are therefore required to register in Germany,
III. need for action
The regulations on the sales taxation of electronic services to non-entrepreneurs by foreign companies have been in place for several years and have now become the focus of the tax authorities due to the steadily increasing sales growth in the digital industry.
There is an urgent need for action for all foreign companies, especially U.S. companies, that sell electronic services to German non-entrepreneurs. If such services have been provided for years
If the goods were exported, but no VAT was paid in Germany, there is a risk of high interest payments and possibly penalties and fines in addition to the subsequent assessment of 19% VAT.
Companies should review their digital services in this regard and, in the event of incorrect or incomplete sales taxation in Germany, disclose this to the responsible tax office without delay. At the same time, careful consideration should be given in these cases to whether the disclosure to the tax office can or should be structured at the same time as a self-disclosure exempting from penalties or fines.
If the tax authorities have become aware of the case before a timely registration or submission of VAT returns has taken place, further correspondence with the authorities should be conducted with particular care. In the event of a (tax) inquiry by the tax investigation department pursuant to sec. 208 para. 1 No. 3 AO, it is still possible to file the (late) report in such a way that it also fulfills the requirements of a voluntary report that is exempt from penalties and fines.
We will be happy to provide you with advice on turnover tax and preventive advice with a view to a voluntary declaration made as a precautionary measure, as well as in the context of defense in preliminary proceedings already initiated, together with our tax experts at KPMG AG Wirtschaftsprüfungsgesellschaft.
You are also welcome to contact our experts at KPMG AG Wirtschaftsprüfungsgesellschaft, Dr. Stefan Böhler and Wendy Rodewald.
Munich Site Manager
Head of Criminal Tax Law
tel: +49 89 59976061652
Head of Criminal Tax Law
tel: +49 40 360994 5081
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