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06 August 2018 Germany moves forward with implementing third party liability rules for online marketplaces On 1 August 2018, the German Government endorsed a draft bill (the Draft bill) of the "Act to prevent VAT losses from trade over the Internet and further amendments to tax provisions" (formerly: Jahressteuergesetz 2018, or Tax Act 2018). The Draft bill was preceded by a Ministerial Draft dated 25 June 2018. Alongside other adjustments to several tax laws, the planned changes to the Value Added Tax (VAT) Act include the introduction of third-party liability to providers of electronic marketplaces. While the below-mentioned rules enjoy strong support in general, the legislative process is still at an early stage, with the next anticipated stage being for the Draft bill to pass the first chamber (Bundestag). While the battle against VAT fraud takes many different forms, electronic marketplaces have driven much media attention lately in Germany. Through this momentum, the States (Länder) have pushed the Federal Government to act on this issue. Political discussions have now turned into legislative action by the Federal Ministry of Finance. With similar recent developments in the United Kingdom (UK) in mind, a broadly similar set of rules has now been proposed, whereby providers of electronic marketplaces shall be obligated to record all supplies of goods enabled via their platforms. Furthermore, providers shall generally be deemed liable for unpaid VAT of the respective sellers. However, liability can be prevented if the provider of the marketplace presents a certificate that the seller is registered for VAT purposes. The Draft bill clearly states that only the presentation of such a certificate may ward off liability. In general, the German Draft bill is planned to be effective from 1 January 2019 onwards. However, a grace period is given for the application of the third-party liability for the sales of non-European Union (EU) and European Economic Area (EEA) taxable persons. Under this measure, from 1 March 2019 onwards, marketplace providers can become liable for their unpaid VAT. The respective potential liability for sales of EU/EEA taxable persons will be applicable from 1 October 2019 onwards. However, the record-keeping requirements will apply from 1 January 2019 onwards. German legislation shows no ties to the so-called e-commerce directive,1 which takes a different approach whereby marketplaces are deemed to have received and supplied goods with an intrinsic value not exceeding €150 (for distance sales) themselves. This EU directive is currently scheduled to be in effect from 2021 onwards. The new third party liability rules shall be introduced through two new sections in the German VAT Act. First, a record-keeping requirement shall be implemented for the providers of electronic marketplaces. An electronic marketplace will be defined as a website or any other instrument, which facilitates the provision of information, through which third parties – except for the provider itself – carry out transactions. Providers of such electronic marketplaces shall be obliged to record the details of transactions by taxable persons conducted via the marketplace where the transport of the goods either starts or ends within Germany. The details to be recorded are as follows: 2. Tax registration number of the supplying taxable person and, if given, VAT identification number of the supplying taxable person 3. Start and end date of a "certificate of registration for tax purposes" of the supplying taxable person The certificate of registration for tax purposes stands out as a pivotal detail of the new amendments. This certificate must be requested by the seller from the competent tax office (Finanzamt).2 The certificate shall be limited in time to a maximum of three years. Further, sellers without residence in the EU/EEA shall need to appoint an authorized agent as part of the application for the certificate. For transactions of non-taxable persons, different rules apply, as the certificate shall only be available for taxable persons. Accordingly, the certificate and the VAT identification numbers of non-taxable persons are not a requirement. However, in this case the birth date of the seller shall be recorded. The certificate will initially be issued to taxable persons in paper form. Subsequently marketplace providers shall be able to retrieve electronically the information from a central authority in Germany (BZSt) if a certificate was issued. The date at which this retrieval will be possible shall be announced at a later point in time by the Federal Ministry of Finance, via further guidance. The second new rule establishes a liability of the provider of an electronic marketplace for unpaid German VAT, resulting from transactions of taxable persons (and non-taxable persons) which have been conducted on the provider's marketplace. This general rule is in contrast to the UK approach, which requires a notice or a breach of registration requirements in order to trigger the joint and several liability. The provider of the electronic marketplace may prevent the liability, if he or she is able to show the abovementioned certificate. However, this certificate does not represent a completely safe harbor. This is the most pivotal change between the Ministerial Draft and the later Government Draft. While the Ministerial Draft proposed that the provider must prove – in a non-specified way – that he or she did not know or should not have known – according to the standards of a reasonable merchant – that the seller was in breach of his tax obligations, the Government Draft only foresees the certificate as being sufficient to ward off liability. The certificate only wards off liability, however, if the provider of the marketplace did not know or should not have known that the seller was in breach of his tax obligations. Details of how a provider should have known are not specified. In the case of non-taxable persons trading, the provider may ward off his liability if he or she fulfils the abovementioned record requirements. However, this exception shall not be possible if the type, quantity or monetary value of transactions indicate that the non-taxable person is acting as a taxable person and the provider either knew or should have known this. The local tax office may notify the provider regarding a sellers' non-compliance via a notice. In this case, the provider should ban the seller immediately from the marketplace to avoid liability as in case of such a notice, also the certificate no longer prevents the liability of the provider of the marketplace. In light of European Court of Justice (ECJ) jurisprudence, the principle of third-party liability has evolved over the last few decades. Initially aimed to prevent missing trader intra-community fraud, rulings primarily started with the removal of the right to deduct input VAT. The ECJ jurisprudence developed further to a second stage, also imposing obligations. Strong connections to this doctrine are mirrored in the German initiative obliging providers of marketplaces to record their transactions. The long-accepted understanding that marketplace providers can shift all compliance matters to sellers is politically no longer feasible. The justification of the Draft bill provides that the proposed rules are in the public interest. Political pressure to implement the described rules is high. Whether the final rule will take the form of the current Draft bill should continue to be closely monitored. 1 See Council Directive (EU) 2017/2455 of 5 December 2017 amending Directive 2006/112/EC and Directive 2009/132/EC as regards certain value added tax obligations for supplies of services and distance sales of goods. 2 The respective competent authority may be found out in the UStZustV, see https://www.gesetze-im-internet.de/ustzustv/UStZustV.pdf. Document ID: 2018-5945 |
