Germany’s Federal Ministry of Finance presents a draft circular letter on the supply with transport of goods in chain supplies

Since 1 January 2020, in response to an amendment to the EU VAT Directive, the German VAT Code applies new rules in determining the supply of goods with transport/dispatch in chain supplies. Although the new EU law largely corresponds to the previously applicable German regulations, differences between the VAT Directive and the German VAT Code - especially in the wording - have led to lively discussions among experts. The BMF is adapting the VAT application decree and clarifying some open questions.

In the case of a chain supply where the same goods are supplied successively, the place of supply and potential VAT exemption in Germany have always depended on which supply is the supply with transport/dispatch. The decisive factor in this respect is who is responsible for the transport.

Art. 36a of the VAT Directive also regulates the classification of the supply with transport/dispatch of goods in the case of transport by a trader in the middle of a chain transaction. The VAT Directive (and the new version of the German VAT Code) uses the term "intermediary operator" for this purpose. In principle, the supply of goods to the intermediary operator is considered the supply with transport/dispatch. However, if an intermediary operator informs his or her supplier of the VAT ID of the Member State in which the movement of goods begins, the supply of goods by the intermediary operator is the supply with transport/dispatch. This is already a deviation from the previous German concept insofar as the previous section 3 (6) of the German VAT Code did not exclusively allocate the supply with transport/dispatch of goods to the intermediary operator via its use of the VAT ID.

The German legislature has incorporated the requirements of Art. 36a of the VAT Directive into the new section 3 (6a) of the German VAT Code in compliance with the deadline. Since then, however, three linguistic deviations, in particular, have led to some confusion and debate.

1. Whereas Art. 36a of the VAT Directive requires the intermediary operator to communicate the VAT ID to his/her supplier, Sec. 3 (6a) of the VAT Act uses the term "using". Whether "communicate" and "use" are two different things has since been the subject of heated debate.
 Many have wondered:

  • whether the intermediary operator must use/communicate the VAT ID before the supply of goods, or whether a subsequent use/communication has a retroactive effect
  • whether the VAT ID must be used/communicated for each supply of goods, or whether "collective notifications" are permitted
  • whether some kind of active effort is required so that the mere presence of the VAT ID on the purchase order or other business documents is considered insufficient

With regard to use of the VAT ID, the BMF has clarified that this must be done before the start of the transport or dispatch (section 3.14, paragraph 10, sentence 1 of the draft VAT application decree). Accordingly, there is no provision for retroactive use.

Furthermore, the BMF applies the requirements of section 3a.2 para. 10 sentences 2 to 6 of the VAT application decree to the use of the VAT ID by an intermediary operator. The regulation relates to situations in which the recipient of a supply of service can influence the place of supply by using a VAT ID. The most important requirements resulting from this reference are:

  • The term "use" as it applies to a VAT ID presupposes an active effort by the service recipient, usually already when the contract is signed. A verbal use is possible if the supplier records it. 
  • It is sufficient if, when the master data of a customer is recorded for the first time together with the VAT ID requested for this purpose, a declaration is also included from the customer that this VAT ID is to be used for all future - entrepreneurial - individual orders. A VAT ID printed on the letterhead, or a VAT ID printed on a form in a customer’s credit note, is not considered sufficient on its own.
  • It is difficult to apply section 3a.2 (10) sentence 6 to cases involving use of the VAT ID as ordered by the BMF. It appears that the requirements are satisfied if the intermediary operator correctly includes its turnover in the EC sales list and the invoice contains the VAT ID. However, because the VAT application decree (section 3.14 (10) of the draft VAT application decree) requires that the VAT ID be used at the start of the transport or dispatch, the impact of this simplification remains unclear.


2. Section 3 (6) sentence 5 of the German VAT Code requires the intermediary operator to prove that he/she transported or dispatched the goods as the supplier if he/she wants to attribute the movement of goods to their supply.

However, Art. 36a of the VAT Directive does not stipulate an obligation to provide proof. It was discussed here whether an obligation to provide some form of proof in the German VAT Code could therefore infringe on EU VAT law.

The BMF resolves this in its draft by stating that in the case of intra-Community supplies of goods, proof is deemed to have been provided by the use of the VAT ID. The proof requirement will only apply to supplies within Germany, which are not regulated by Art. 36a of the VAT Directive. However, determining the supply with transport/dispatch is irrelevant here anyway, as the place of supply is in any case within Germany and VAT exemptions for intra-Community supplies/exports do not come into consideration.

3. Regarding the initiation of transport by the intermediary operator, section 3 (6a) sentence 4 of the German VAT Code states that the intermediary operator transports or dispatches the goods. According to the previous German understanding, this meant that the intermediary operator either performs the transport using their own means or that they have commissioned a third party to do so; in this case, civil law dictates that the intermediary operator must be the principal. Art. 36a (3) of the VAT Directive formulates this somewhat differently in that an intermediary operator within the meaning of this provision must dispatch or transport the goods "himself or by a third party acting on his behalf". The German version of the VAT Directive even reads differently phrasing it as “himself of for his account.” This raised the question of whether someone other than the intermediary operator could also be the principal under civil law if only the intermediary operator bears the costs of the transport.

In section 4.14 (7) of the VAT draft application decree, the BMF takes up this issue and clarifies that, although the (civil law) contract is generally decisive, a different allocation is possible if it can be proven that the transport or dispatch was carried out for the account of another trader in the chain and that the latter actually assumed the risk of accidental loss of the object during the transport.

Who actually bears the risk of accidental loss is often not so easy to assess from a legal perspective, especially if foreign law also plays a role or incoterms have been used inconsistently. It is safer to avoid such constellations.

That the VAT ID must be used before the movement of goods begins is understandable when viewed from a strictly legal perspective. After all, VAT accrues at the moment the supply is made, and a local supply cannot subsequently be transformed into a VAT-exempt intra-Community supply or export. From a practical point of view, however, it would be much simpler if the VAT ID could be used until the supplier submits his/her advance VAT return.

(Dated: 06. July 2022)