Change of mind: the German Federal Fiscal Court doubts correctness of debit taxation, VAT, Sollbesteuerung
In the case of debit taxation, the entrepreneurs in Germany have to pay VAT to the tax office as soon as they have written the invoice – even if the customer pays later – what is, until now, an unconditional obligation for the entrepreneurs to pre–finance the VAT.
The German Federal Fiscal Court has now expressed doubts about the continuation of the existence of this obligation without any restriction, since it might be contrary to binding requirements of the law of the European Union. For topical reasons, the German Federal Fiscal Court has sent a preliminary ruling request to the European Court of Justice (Bundesfinanzhof, ruling of 21.06.2017 – V R 51/16, published on 20.09.2017).
In plain language, the subjects of these doubts are the so–called "long–term contracts": in cases, when the entrepreneur has written the invoice but it is paid – in full or in instalments – several years later. The European Court of Justice has now to decide – in a specific case, but for other comparable cases as well – whether the taxpayer is required to pre–finance (pay to the tax office) the VAT due for his service if he is in fact (partially) paid for the service two years later.
Eagerly waiting for the decision of the European Court of Justice are companies in Germany with debit taxation who often have to deal with
conditional remuneration claims (construction, recruitment agencies, freelancers, etc.) and/or
fixed–term payment claims (instalments, individual forms of leasing, etc.).
Under current law and practice, all companies with debit taxation must pre–finance the VAT under all circumstances. However, this might change soon in the above–mentioned cases.