The entry into force of the Single Market and the Customs Code on 1 January 1993 abolished the customs procedures and controls between individual member states that had existed until that time. At the time, the 6th EC Directive of 1977 for the Harmonisation of Laws of Member States relating to value-added taxes was in force, which was again thoroughly revised for this purpose. Today’s German Value-Added Tax Law is based on the European Directive on the VAT System, which came into force in 2006 and replaced the 6th Council Directive.
Before 1993, for a supply e.g. of German goods to the Netherlands, an export notification and customs transit procedure had to be initiated. The goods were then presented to the customs authority in the Netherlands. The T2 customs transit procedure culminated with declaration for release for free circulation. Import VAT then became due with the release for free circulation. This ensured that the country of departure (DE) was released from the VAT burden and the VAT was charged to the destination country (NL).
The EC Single Market abolished these procedures. However, a provision for the collection of VAT for intra-Community supplies was needed to replace the procedure that had been in force in the EC until then. All member states had to implement the guidelines from the 6th EC Directive (and also from the Directive on the VAT system) in national law. In addition to a wide range of “mandatory provisions”, there is also a number of “optional provisions”. This explains the different embodiments of the VAT laws in the member states. The “mandatory provisions” ensure that all national provisions adhere to a uniform system in all member states so that the Single Market functions with respect to the VAT.
The provisions concerning the fiscal representative are classified as “optional provisions” under the Directive on the VAT System. Not all member states have taken advantage of this opportunity to implement them. Fiscal representation was enabled in German VAT law by a decree by the Federal Ministry of Finance (BMF) dated 11 May 1999. The 6th Council Directive, which was adopted into the Directive on the VAT system, provided for the authority to do so.
If a company from another member state (e.g. Austria) imported goods from a third country (e.g. China) via a German sea or airport and the goods were already to be released for free circulation upon arrival, German export VAT and not customs duties were levied upon release for free circulation. Due to the national provisions and insufficient harmonisation in the member states, an Austrian company was not able to claim the export VAT it paid in Germany as input tax in Austria. This is still the case today.
For the first alternative, a transit procedure must be initiated in order to transport the goods from the seaport/airport to the destination in Austria. The goods then have to be presented to customs in Austria again. The transit procedure must be concluded and a customs declaration for free circulation must be submitted. The allocation of the payment of import VAT to the VAT declaration in Austria means this is no longer a necessity today – this is not the case, however, in other countries where this possibility currently doesn’t exist.
Though the second alternative spares the importer the transit procedure and a second stop at customs in Austria, the importer is unable to claim German import VAT vis-à-vis the Austria tax office. It is either stuck with the costs or is left with the complex, time-consuming task of having the import VAT reimbursed.
Though the third alternative achieves its goal, fiscal registration in Germany also requires that all fiscal reporting obligations are fulfilled.
This in turn uses up more administrative resources.
The fiscal representative was introduced under the German VAT Law (UStG) with the following objective:The fiscal representative was introduced under the German VAT Law (UStG) with the following objective:
The fiscal representative can, on a tax level, assume obligations as its own on behalf of the importer.
The provisions for the prerequisite according to which a fiscal representative is allowed to be active are provided for under UStG sec22 a to f. The fiscal representative is issued a separate tax number and VAT identification number for fiscal representation. The represented party appears in Germany under this VAT identification number in order to fulfill this prerequisite for the intra-Community supply.
Companies, which themselves are not registered fiscally in Germany and which are neither based nor have a branch office or management in Germany, can have themselves represented. Furthermore, they may only execute tax-exempt transactions and not deduct any amounts for input tax. If a representative executes transactions subject to VAT or has paid import VAT in Germany, fiscal representation on behalf of this company is no longer possible for the applicable notification period.
The fiscal representative has a number of rights, but above all duties, which it must also fulfil as it would its own. This includes the submission of summary notification to the Federal Central Tax Office. It is important that the fiscal representative and the buyer are able to communicate properly. The buyer must consider the basis for calculation of the import VAT in the purchase tax return submitted to its tax office. Both amounts must correspond – the amount reported by the fiscal representative and the amount declared as an intra-Community acquisition by the buyer in its member state. Discrepancies in the declared amounts result in, in many cases, preventable inquiries by foreign tax offices. The fiscal representative must keep separate records for each party represented and submit a VAT return.
In accordance with sec. 22c UStG, the invoice must, in addition to the information required for the intra-Community supply, contain the following information for fiscal representation:In accordance with sec. 22c UStG, the invoice must, in addition to the information required for the intra-Community supply, contain the following information for fiscal representation:
The fiscal representative requires a written power of attorney from the buyer or seller to be represented depending on the details of the respective case. Solely a customs power of attorney is not sufficient for this.
As the fiscal representative must keep proof in the form of records and documents in Germany, it also requires a document as proof of the intra-Community supply in accordance with sec. 17 a UStDV. The possibility of confirmation of arrival has significantly simplified the fulfillment of documentation duties, particularly with respect to electronic communication.
If one or more of the described obligations is or are not fulfilled by the representative e.g. lack of evidence of the intra-Community supply, the buyer, not the fiscal representative, shall be liable for the import VAT in Germany providing this does not concern gross negligence or intent. It is therefore in the representative’s interest to engage a fiscal representative, who performs its business in a prudent manner and duly complies with all obligations.
Fiscal representation applies almost exclusively in connection with release for free circulation for imports from third countries. Not only the provisions regarding the fiscal representative (sec.22a to e), but also the complex provisions regarding intra-Community deliveries must be observed in this respect.
At the same time, release for free circulation is generally declared in procedure 42 and/or 63 following outward processing. Procedure 42 entails
Simultaneous movement of goods for free circulation with tax-exempt supply. (Exemption from export VAT) in accordance with sec. 5 para. 1 no. 3 UStG to another member state, if applicable, with the movement of excise goods under a duty suspension arrangement
The declaration occurs as with procedure 40 where the import duties including import VAT are collected.
Unlike procedure 40, however, a tax-exempt intra-Community supply of goods follows the release for free circulation. It must begin after movement to Germany and end in a member state other than Germany. The time between the movement and supply has not been legally defined. As a rule of thumb, a maximum period of 2 weeks is applied and should be between the movement and further transit to another member state. In general, the processing of goods is permitted in the meantime if a connection can be established between the cleared and delivered goods.
With every order, a check as to whether fiscal representation is possible must be performed separately according to the following criteria:
While the formal requirements can be verified with relative ease, determining whether the requirements of a tax-exempt intra-Community supply have been fulfilled are disproportionately more complex and require in-depth knowledge of the VAT Act.
As fiscal representation must be implemented in national law, it is also not uniformly implemented within the EU. There are in part significant differences.
In Austria and Poland, fiscal representation has for the most part been implemented with the same terms and prerequisites. Permission to act as a fiscal representative in both countries is, however, only granted if said party registers in indirect representation. The fiscal representative is therefore forced to assume responsibility and liability under customs law, which in fact has nothing to do with the fiscal representation itself. In Austria, there are many cases where the fiscal representative even had to suffer the consequences resulting from the buyer fulfilling its reporting obligations in the country of destination even though arrival in the other member state has been documented without doubt and all other obligations have been fulfilled by the fiscal representative.
The system in The Netherlands is completely different. Strictly speaking, the term fiscal representation has a different meaning there. The first difference is that goods are released for free circulation with procedure 40 instead of procedure 42. In this case, the fiscal representative itself owes the import VAT and subsequently brings about the intra-Community supply.
Effectively, no import VAT is paid as the time of payment is postponed to the VAT advance return since the tax liability is virtually zero in such cases. Nonetheless, the intra-Community supply is subject to the same requirements. If, however, one or more requirements are not met or if the intra-Community supply is not declared or cannot be verified, the fiscal representative is generally liable for 100% of the import VAT with retroactive effect for 7 years.
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