German courts simplify VAT correction procedures

Germany: The Federal Court of Finance (BFH) recently considered a case in which a UK based business leased exhibition space at trade fairs in Germany to German customers. The UK business did not see that the services they provided were subject to the reverse charge mechanism and incorrectly charged German VAT. The tax authorities, trying to correct the wrong invoicing, refused a refund of VAT to the UK business.

Decision

The BFH confirmed that a business incorrectly charging VAT is generally liable to pay these amounts to the authorities (Art. 14 c par. 1 sent. 2 German VAT Act, Art. 203 of Directive 2006/112/EC).

However, in contrast to the decision taken by the authorities, who asked for the issue of new invoices, the court states an assignment note can be considered as proper correction. The court points out that the requirements for the correction must not be overstretched, but that business needs should be taken into account.

Conclusion

It is welcome that the BFH simplifies the correction of incorrectly charged VAT. Even an assignment note can count as a sufficient correction note. The case in question was straightforward, however, and a correction was made easily. For more complex business relationships it is highly recommend to forward a clear and specific correction note. This can be done by a document listing the concerned invoices and incorrect VAT amounts subject to the correction.