Drastic changes in the VAT treatment of fuel cards - draft BMF circular letter

In response to the ECJ ruling, the BMF is sending industry associations a draft of a circular letter on the subject of fuel cards. The previous practice of treating fuel card transactions as chain supplies of fuel will now become the exception. Issuers of fuel cards will be required to switch to VAT-exempt financial services as early as 1 January 2022.

Until now, fuel card issuers were left in peace by the tax office if they adhered to a few requirements

If a company maintains a large fleet of vehicles, accounting for, and deducting, the input VAT from the myriad fuel bills can be tedious. Many, therefore, greatly welcomed the services of fuel card issuers because it meant that they only had to pay one invoice each month for the fuel used by the entire fleet. This worked because the tax offices assessed VAT based on the assumption that this was a chain supply of fuel in which the petrol station/petroleum company first supplied the fuel to the card issuer, which then in turn supplied it to the customer.

This practical solution was already jeopardised in 2003 by the ECJ’s preliminary ruling in the "Auto Lease Holland" case (C-185/01, February 6, 2003) and the follow-up ruling of the German Federal Fiscal Court (BGH) (V R 26/00, 10 April 2003). In the underlying case, a leasing company had issued a fuel card to the lessee which allowed the lessee to refuel in the name of (and on behalf of) the lessor. The ECJ, and subsequently the BGH, took the view that the petrol station/petroleum company had delivered the fuel directly to the lessee. This meant that the lessor had not supplied fuel to the lessee, but rather had provided a financial service.

Although the BMF could not ignore this case law, it did severely restrict its scope of application in a letter dated June 15, 2004. Accordingly, treating this as a chain supply of fuel remained the rule. Only rarely was it assumed to be a financial service provided by the card issuer, and the industry took great care to adhere to the BMF conditions to avoid having these transactions being labelled as such.

BMF plans to make the chain supply of fuel an exception and tightens the conditions

In 2019, the ECJ confirmed its case law in the Vega International case (C-235/18, May 15, 2019). This has apparently now prompted the BMF to change course and reverse the rule/exception ratio. With reference to the ECJ case law, the BMF assumes that the fuel card issuer (unlike the fuel owner) has no control over how the fuel is disposed of because it is the customer who decides when to refuel and can freely choose (among other things) the quality, quantity, and type of fuel as well as the place and time of delivery. Therefore, no fuel is actually supplied to the card issuer. As a rule, the card issuer is therefore providing a financial service to the customer, which is VAT exempt under Section 4 (8) (a) of the German VAT Code.

Treating this as a chain supply of fuel is therefore the exception and can only be assumed ifall the specified conditions are met. These are similar to the conditions outlined in the BMF letter dated June 15, 2004 but are now stricter.

  • There must be an agreement on the supply of fuel between the card issuer and the customer; the fact that no management of fuel or granting of credit has been agreed is no longer sufficient.
  • The fuel card issuer must acquire the object to be supplied with the intention of supplying it to the fuel card user. The fuel card issuer must be free to make decisions regarding the quality and quantity along with the place and time of delivery. It is not sufficient if any authorisation by the fuel card issuer is automatically limited to only complying with the existing framework conditions/restrictions (e.g., checking of the specific card’s maximum credit limit). It will probably be difficult to comply with this requirement in practice.
  • Until now, using the issuer’s fuel card was sufficient proof that the customer was refuelling in the name and for the account of the card issuer. This will now no longer be sufficient. However, the BMF has not defined exactly how the customer should now prove this to the petrol station operator.
  • The supply of the fuel cannot be a dependent ancillary service e.g. to a leasing service.

Need for action

The BMF’s draft letter only provides for a very short transition period. The new principles are to be applied to all open cases, and only until the end of 2021 will there be no objections if the previous practice is followed. Fuel card issuers should check as soon as possible whether the stricter conditions for a chain supply can be met by amending the contracts. If this is not possible, it must be converted to a VAT-exempt financial service - also, and above all, with regard to invoicing. Fuel card issuers can no longer claim an input tax deduction on the fuel receipts.

The VAT-exempt output services have an impact on the input tax rate of the fuel card issuer. If no taxable sales are made in addition to the fuel card business, the input VAT deduction is completely excluded.

Customers who receive invoices for fuel with VAT from fuel card issuers from 2022 onwards must carefully check that these invoices comply with the conditions set by the BMF. If they are not met, the customer cannot deduct the input VAT shown on these invoices, in which case they should submit a complaint and request a corrected invoice. As the customer itself is then the recipient of the fuel supplies from the petrol stations/petroleum companies, the individual fuel receipts must be used for the input VAT deduction - also with regard to the correct taxation period.