Incorrect VAT tax statement in invoices to final consumers – BMF letter dated 27 February 2024

An invoice with an openly stated VAT bears the risk that the recipient will claim an input VAT deduction, even if the VAT was incorrectly stated. Therefore, Art. 203 of the VAT Directive and, correspondingly, § 14c UStG (German VAT Code) stipulate that the invoice issuer is liable for this VAT because it is shown on the invoice. According to the previous case law of the BFH (Federal Fiscal Court), this applied even if the recipient of the supply is not a taxable person and therefore not entitled to deduct input VAT (V R 4/18, 13 December 2018). The case in question concerned a consumer counselling service that was incorrectly invoiced at the standard VAT rate, although the reduced VAT rate should have been applied. Although the service was aimed at final consumers, in the opinion of the BFH, a tax liability should arise in accordance with § 14c UStG because, on the one hand, the wording of § 14c UStG does not include any restrictions to invoices to taxable persons. There could also be legal doubts as to the recipient’s entrepreneurial status and whether the recipient is acting as a taxable person.

However, the ECJ took a different view in the case "P-GmbH v Finanzamt Österreich" (C- 378/21, judgement of 8 December 2022). The operator of an indoor playground had taxed its services at the standard rate of 20%, although the reduced rate of 13% would have been correct. The ECJ ruled that P-GmbH did not owe the additional amount because the customers were exclusively final consumers who were not entitled to deduct input VAT and therefore the tax revenue was not at risk.

BMF letter:  Judgement only applies in certain cases

§ 14c UStG must be interpreted restrictively in accordance with EU law.  Accordingly, incorrectly shown VAT is not owed if all the following conditions are met:

• A taxable person (including small businesses) has actually performed the invoiced supply.
• The invoice recipients are non-taxable persons or taxable persons who do not act as such (in particular taxable persons who receive the supply for their private sphere or a non-economic activity).
• The taxpayer can credibly demonstrate or plausibly justify that the above two conditions have been met.

However, ECJ judgement C-378/21 does not apply in the following cases:

• With the exception of the VAT statement by a small business, there is a case of an unauthorised VAT statement in accordance with § 14c (2) - if the invoice issuer is therefore not a taxable person or has not provided the invoiced supply or
• The supply was provided to a taxable person (including small businesses, flat-rate farmers and foresters as well as taxable persons with supplies that fully or partially exclude the deduction of input VAT) for their business activities or
• It cannot be assessed with certainty whether the invoice recipient has acted as a taxable person or as a final consumer. Estimates or probability calculations are not permitted. However, the type of supply can be taken into account.  The catalogue of services in section 3a.2 para. 11a UStAE can be used here. It gives examples of services that are usually obtained "privately", such as medical treatment, counselling services in family matters and the like.

If § 14c UStG is not applicable, the invoice issuer does not have to correct the incorrectly recognised VAT.

If the standard tax rate is erroneously applied to a transaction that should be taxed at a reduced rate, the following applies: If the invoice is not corrected and the additional amount is not refunded to the customer, the VAT must be deducted from the gross amount at the reduced tax rate. To only owe VAT on the net amount, the entrepreneur must correct the invoice.

The BMF circular is to be applied in all open cases. The UStAE (administrative guidelines to the German VAT Code) will be amended accordingly.

Author

Nadia Schulte
+49 211 83 99 330