Düsseldorf, 23 February 2010 – The implementation of the new services directive varying from one EU member state to another is causing concern to many businesses in Germany. This was pointed out by World Tax Service WTS. On 4 March 2010 WTS will hold the “International VAT Meeting 2010” with VAT experts from eleven European countries at Düsseldorf airport. About 60 participants have already registered.

As a result of the VAT Package valid throughout the EU, the German VAT law has experienced its most radical reform since the introduction of the European single market in 1993. From now on the following significant changes have to be observed:

• In the B2B sector the place of supply of services should as a general rule be based on the place of business of the customer (and generally no longer on the country-of-origin principle).
• The reverse charge mechanism was extended. This means that in the B2B sector the VAT liability is transferred to the customer. Thus the customer has to pay the VAT due and can at the same time deduct input tax which are then balanced against each other, whereby VAT fraud and loss of revenue due to insolvency should be controlled.
• For other services a recapitulative statement is to be submitted as well.

Specifically with the determination of the place of supply the new services directives aims at a simplification. Nevertheless there has been considerable legal uncertainty among many companies doing business throughout Europe since the directive came into effect on 1 January 2010. This is sometimes due to the fact the directive leaves substantial scope of interpretation in its transposition at national level. This goes for example for the issue of providing evidence of the entrepreneurial status of a customer. The Federal Ministry of Finance responded to these issues and released a communication of as many as 50 pages which governs a lot of details but still leaves many questions in dispute unanswered.

“The country-specific interpretations of the services directive unfortunately vary considerably from one member state to another“, explains Joachim Strehle, Head of the WTS VAT Service Line. “The EU member states do not only have very specific documentation requirements but also the penalties and fines for non-compliance with these rules and regulations differ widely.“

In case of doubt German businesses must reckon on a large share of their documents not meeting the strict requirements with respect to the entrepreneurial status when reviewed in future tax audits. As a consequence significant additional payments might become due amounting to the VAT payable for the transaction plus interest. Therefore WTS has developed a consulting tool for this specific German situation that offers protection of legitimate expectations for the verification of value added tax identification numbers. Thus a qualified proof is obtained for the entire customer database of a company on the basis of this software.

One of the tricky issues of the VAT package is the distinction between headquarters and permanent establishment. If a German company receives an order from abroad but provides the service at the permanent establishment of its foreign customer in Germany, the question arises where this transaction is taxable? But also the proper declaration of a transaction with respect to time is rather difficult to achieve. If a French entrepreneur supplies a service to a German entrepreneur in February 2010, the customer in Germany has to include this transaction (already) in the monthly VAT return for February 2010 even though the respective invoice of the French contractual partner is not received before April 2010 and the exact amount of invoice is not known.

The WTS-Meeting offers businesses and investors the opportunity to discuss local issues and difficulties regarding cross-border services with outstanding VAT specialists. The focus is on concrete real-life cases such as local registration obligations, the design of invoices for cross-border services or the use of VAT identification numbers. 

Pictures and Press Materials

 There has been considerable legal uncertainty among many companies doing business throughout Europe such as construction industry since the directive came into effect.

Press release as pdf