EDITOR’S NOTE: The following article is written by Schomerus Tax Consultant Dr. Mario Wagner. Wong Fleming maintains an alliance with the German law firm of Schomerus, which is headquartered in Hamburg, Germany. The combined law expertise between Schomerus and Wong Fleming allows for better consulting in cross-border matters such as tariffs, export control and enterprise establishment in the US and Germany. For more information, Dr. Wagner can be contacted at firstname.lastname@example.org.
Wong Fleming/Schomerus Legal Update:
Combating VAT Fraud in E-Commerce in Germany-
Why Foreign Online Retailers Should Make Sure to Be Ready to Register
By Dr. Mario Wagner, Tax Consultant, Schomerus & Partner mbB
In August 2018, the Federal Government of Germany approved a draft law to combat VAT fraud in online sales. This proposed legislation is anticipated to take effect in January 2019, when operators of electronic marketplaces will have to collect certain data from their retailers. Otherwise, operators will be liable for any unpaid sales tax from trading via their platform. In addition, unregistered online retailers could face exclusion from the platform.
In particular, companies based in non-EU countries that are not tax registered in Germany often violate their existing tax obligations on electronic marketplaces. In particular, they do not pay sales tax on their sales generated from B2C sales in Germany. The annual tax loss for the German tax authorities is estimated in the hundreds of millions.
In order to combat tax evasion via online marketplaces, a similar reform of e-commerce, to take effect in 2021, was already approved in 2017 by the European Commission for the entire European Union. Due to the high tax losses, Germany’s version of this law is likely to be implemented two years before the EU-wide law takes effect.
The draft law includes two core elements:
- All operators of electronic marketplaces must collect certain data from sellers and transfer them on demand to the relevant German tax office. This data includes, among other things, name, full address, tax number, shipping and delivery address, time and amount of sales.
- The operators will be liable for any unpaid taxes from deliveries beginning and ending in Germany. They can avoid this harsh sanction if they fulfill certain recording obligations or exclude tax-relevant traders from their online marketplace.
Proof of proper tax registration of an online retailer in Germany will come in the form of the so-called “registration certificate”, issued by the relevant tax office, at the request of the online retailer. For online retailers from countries that do not belong to the EU or the EEA, their application for the registration certificate must be accompanied by a designation of the online retailer’s authorized representative in Germany. The Federal Central Tax Office plans to provide the operator of an electronic marketplace by means of an electronic query with information about the certificate stored there. However, pending the introduction of this inquiry procedure, this service for the operator is not yet available. Therefore, the certificate will be temporarily issued to the online retailer on paper.
After the expected announcement of the law in December, all online retailers should apply for their registration certificates and once granted, proactively provide the marketplace operators with them. Otherwise, they are threatened with an exclusion from the trade via the notification to the marketplace operator.
Dr. Mario Wagner
Diplom-Kaufmann · Tax Consultant
Hamburger Treuhand Gesellschaft
Schomerus & Partner mbB
+49 (0) 40 37601-2387