No reverse charge for the mere supply of goods assembled on-site - BMF circular letter dated 1 October 2020

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reverse charge assembly on-site work supply

Under German VAT law, there are two types of supplies involving the provision of goods with installation, and each has its own VAT regulations. One type of supply involves the provision of assembled goods and the other involves the provision of work supplies. These differences are, in reality, often overlooked.The BMF (Germany’s Federal Ministry of Finance) has clarified this important distinction in the administrative guidelines with a circular letter dated 1 October 2020. As of 1 January 2021, treating supplies of assembled goods as work supplies is no longer be tolerated.

Objects owned by the customer must be processed

In its judgement of August 22, 2013, V R 37/10, the BFH stated unequivocally that a work supply must be viewed as a uniform supply involving both the supply and the processing of items not belonging to the supplier. This definition of a work supply cannot be derived from Section 3 (4) of the German VAT Code. In a circular letter from Germany’s Federal Ministry of Finance dated October 1, 2020, the tax administratrion clarified this in Section 3.8 (1) Sentence 1 of the administrative guidelines to the German VAT Code. This states that something can only be considered a work supply if the entrepreneur works on or processes an object belonging to someone else using (primary) materials that he or she procured for this purpose. If the entrepreneur, on the other hand, transports his/her own items to the customer and then assembles them there, this is simply considered as the supply of assembled goods. Only if these items are firmly attached to a customer’s object on-site (for example, by installing them in a house) is this considered a work supply.

Place of supply remains the same, but reverse charge only applies to work supplies

The difference between work supplies and supplies of assembled goods is irrelevant in determining the place of supply. The reverse charge mechanism as defined in Sec. 13b (2) No. 1 as it relates to (5) Sentence 1 of the German VAT Code, however, only applies to work supplies. Foreign companies must have a VAT registration in order to supply assembled goods that include assembly or installation in Germany.

Non-complaint period

This fine distinction is often disregarded in practice. The BMF is magnanimous here and does not object if a work supply is accepted before December 31, 2020 even if this only involves the processing of own goods. However, incorrectly managed supplies dated on or after January 1, 2021 should be corrected.

 

Dated: June 9, 2021

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