Consignment Stock – New guidance issued by German tax authorities
In light of case law from the German Federal Tax Court, German tax authorities recently issued amended guidance on the application of VAT to German consignment stocks. This has been the subject of discussions for a very long time. The main issue is the differentiation between a VAT-exempt intra-community supply of goods and a domestic supply where consignment goods are shipped from another EU Member State. Previously, German tax authorities often took the view that the shipment of consignment goods and its subsequent usage or withdrawal had to be separate transactions for VAT purposes, namely (i) an intra-community transfer and (ii) a domestic supply. In practice, this leads to significant red tape for the supplier, most notably, the obligation to register for VAT purposes in Germany.
A key term mentioned in the guidance is “binding order”. According to the guidance, goods shipped from another EU Member State to a consignment stock situated in Germany, based on an existing “binding order”, followed by the use of such goods by the recipient, results in an intra-community supply from the supplier to the recipient at the time when the shipment starts. Previously, this would have been considered an intra-community transfer and a domestic supply.
The tax authorities did not provide detailed guidance on when an order qualifies as “binding”. In our view, such an assessment must be made from a civil law perspective and consider case law issued by the European Court of Justice, which amongst other things, requires a temporal and material link between the supply of the goods and the shipment of those goods.
In light of this new guidance, companies should review the VAT treatment of deliveries made through or received via a German consignment stock. Both, the supplier and the recipient of the supply have considerable interest that the tax authorities accept the VAT treatment of such. Thorough review of the underlying agreement(s) is key. In terms of new agreements with customers, suppliers should keep this in mind when negotiating such agreements with their customers accordingly.
The German tax authorities have announced that this guidance will apply retroactively, to the extent that the underlying assessment is still amendable; grandfathering rules will apply to deliveries and intra-community acquisition of goods made before 1 January 2018.