The VAT treatment of consignment stocks has repeatedly been subject to court decisions in Germany. Tax authorities take the view that in a case…
The VAT treatment of consignment stocks has repeatedly been subject to court decisions in Germany. Tax authorities take the view that in a case:
- where a non-established supplier ships goods from abroad to the warehouse of a German customer
- whereas the title of possession is transferred at the moment the customer withdraws the goods from the warehouse
such a supplier has to VAT register in Germany. Subsequently, the supplier has to report a deemed intra-community acquisition in Germany and a subsequent local sale to the customer. However, it can also be argued – and it has already been tested successfully in court – that the supplier carries out an intra-community supply of goods.
In a recent case, the fiscal court of Lower Saxony (18 June 2015, 5 K 335/14) also came to the conclusion, that the supply of consignment stock (by a UK supplier) to a (German) customer can be treated as a direct intra-community supply of goods (from UK to DE). To come to this result, the court took into account several aspects of the specific case, which seem to be quite typical for consignment stock agreements, in particular in the automotive industry:
- There is only one German customer.This customer places orders on the basis of expected volume of the material and – obviously driven by optimization issues – the maximum storage period was 4 weeks.
- The material is tailor made for the purposes of the customer – a sale to third parties is commercially unreasonable / technically impossible.
Furthermore, the court ruled that a different treatment for accounting purposes (profit realization at the moment of withdrawal by the customer) and from a legal perspective (transfer of ownership upon withdrawal / payment of the purchase price) cannot be decisive for VAT purposes. Instead, it is to be taken into account that the customer can actually dispose over the goods just from the moment they are put into the warehouse. So far there is no difference to a “direct” sale. As a result, the time and place of supply is determined by the place from where the goods are shipped (UK). On this basis the court confirmed that there is no need for the UK supplier to VAT register in Germany!
The decision is to be seen as an important win for the UK supplier who has operated the consignment stock in Germany since 2004 (without being registered for VAT in Germany) but did not disclose this to the tax authorities until 2011! If the tax office would have succeeded, the supplier would have received VAT assessments (plus interest) for the last 7 years.
It may be seen as a strategic decision by the tax office not to file an appeal at the German Supreme Court (Bundesfinanzhof) since a respective upper court decision may have required an immediate change of policy. For the time being the doubts remain in place since there is also no evidence that European bodies ask for a further harmonization of VAT rules for consignment stock. From this background the decision at hand is at least a good basis for non-established suppliers to argue that there is no need to VAT register in Germany. Of course, such handling needs to be disclosed to the tax authorities as it is not in line with their official opinion. We have learned that the German tax authorities currently discuss the matter and hopefully one day in future they will take over the ratio of the courts.
Hans-Martin Grambeck
nesemann Umsatzsteuerberatung GmbH
