Device bonus for mobile phone contracts - BMF letter dated 23 January 2024

The German tax authorities amended the VAT Application Decree: If a mobile phone company concludes a contract with an intermediary in which it pays the intermediary a commission regardless of whether this intermediary provides a phone to its end customer, this is considered contractual decoupling and the full amount of the commission is then considered the remuneration for the intermediary service.

Background

Intermediaries in mobile phone service contracts receive a commission from the mobile phone company for acting as a middleman. They often also receive a “device bonus” as compensation for providing a mobile phone to the customer. In its judgement of 16 October 2013 (XI R 39/12), the German Federal Fiscal Court (BFH) ruled that the device bonus is remuneration from a third party for the supply of the mobile device to the customer. The tax authorities adopted this view in sec. 10.2 para. 5 sentences 7 and 8 UStAE (VAT Application Decree).

Clarification for device-independent commissions

In its letter dated 23 January 2024, the BMF clarifies that there is no remuneration from a third party for the supply of the mobile device if the commission is paid regardless of whether or not the intermediary provides the customer with a device. In this case, the commission as a whole, i.e. including any device bonus, is remuneration for serving as the intermediary.

Practical effects

If the mobile phone service provider does not pay for the mobile phone that it supplies to its customer, this means that there is no direct link between the payment the intermediary receives and its supply of the device to its customer. However, this link would be a prerequisite for it to be considered remuneration from a third party.

If the commission is remuneration for acting as an intermediary, the mobile phone service company can claim an input VAT deduction for this. For the intermediary, the corresponding amount is then part of the tax base of the intermediary service, not for the supply of the mobile phone, which may make a difference in cross-border transactions. If the other requirements are met, the customer could claim the input VAT deduction for the supply of the mobile phone if they paid for this. The device bonus is not part of the fee paid. If the intermediary provides the mobile phone free of charge, a free transfer of value pursuant to Section 3 (1b) sentence 1 no. 3 UStG (German VAT Code) may be considered.

The mobile communications industry must carefully distinguish whether the device bonus is independent of other remuneration or not. Errors can lead to incorrect VAT in accordance with Section 14c UStG, which states that it must be paid because it is shown on an invoice.