The value added tax field is the only type of tax where the European Union was able to achieve a harmonisation of the tax law. In the income taxes field, in contrast, the relevant national law stills applies. Therefore, in the field of value added tax, the decisions of the European Court of Justice (ECJ) are of particular importance, particularly also to the national law in Germany.
In two decisions dated 15 September 2016, the ECJ now established some principles that could pull the plug on the practice of the German fiscal authorities in two essential aspects: On the one hand, it is about the question what requirements need to be met by the invoice of the performing company so that the receiving company can claim the input tax deduction according to Section 15 of the German VAT Act (UStG). The ECJ does generally acknowledge that the precondition for the input tax deduction is a proper invoice of the performing company. However, this is only a formal and not a material precondition for the input tax deduction. Therefore, the input tax deduction can only be refused if so-called essential features are missing in the invoice, as the neutrality principle of the value added tax has priority over the formal requirements to be met by an invoice. In the ECJ’s opinion, this results in the following:
Essential features are the issuer of the invoice, the service recipient, the service description, the remuneration and the VAT amount. The time of service, the invoice number, the tax number or the VAT identification number and the tax rate are not essential features.
On the other hand, the decisions were about the question whether an initially improper invoice can be corrected and the input tax deduction is then permitted (with retroactive effect). Die German fiscal authorities have previously been of the opinion that this is not possible. They indeed refuse the input tax deduction if the invoice is insufficient and, if it is corrected later, only recognise the input tax deduction in the period of correction. This causes liquidity problems for the affected companies at first, and particularly also leads to the accrual of interest amounting to 6%.
In this regard, the ECJ has now decided that corrections with retroactive effect are permitted. This prevents temporary liquidity problems and particularly the accrual of interest.
The ECJ has not yet decided whether the input tax deduction is permitted if the performing company has not actually had a registered office or branch at the provided address. Relevant proceedings are pending at the ECJ. – For the avoidance of doubt, it should be pointed out that there are still special regulations for the input tax deduction if the services are rendered by a foreign company. If a foreign company has a German branch, the receiving company must have the existence of the German branch certified on an official form of the fiscal authorities (reformulation of the act in 2014). The input tax deduction is only permitted on the basis of such certification (Section 13 b UStG). Otherwise, there is only the option that the receiving company pays the value added tax to the German tax office itself.