Change in value-added tax – civil law consequences
On 3 June 2020, the coalition parties agreed in the coalition committee on an economic stimulus and crisis management package, which includes, among other things, a temporary reduction in the VAT rate from 19% to 16% and from 7% to 5% for the period from 1 July 2020 to 31 December 2020.
Besides the multitude of tax law questions and problems of delimitation, questions also arise with regard to contractual agreements. Or to put it more simply: What amount is payable now? Who benefits/loses as a result of the measures? Can overpaid value-added tax be reclaimed?
Gross or net agreement
In order to answer the above questions, the specific remuneration agreement in the individual case must be examined. The situation becomes problematic if the respective contract constellation does not contain an express remuneration agreement.
In the case of a price agreement without a specific agreement, a gross agreement (with VAT) was concluded in principle in cases of doubt. This also applies to contracts between two companies. If a ‘lump sum’ has been agreed, VAT is therefore basically included in the agreed amount unless a net price was (expressly) agreed.
Tax increases occurring after such an agreement are therefore borne by the supplier, while tax reductions are therefore in his favour. The same applies to long-term contracts for so-called recurring/partial deliverables (such as rent and lease payments).
For customers entitled to deduct input tax, gross price agreements are unfavourable in the context of the change. The amount to be paid to the supplier remains unchanged. However, the deductible input tax is reduced by the amount of the now lower rate of value-added tax. As the deductible input tax volume decreases, the operating expenses for these companies increase to the same extent.
Note: If contracts are currently still being concluded from the perspective of companies entitled to deduct input tax whose services will not be provided until July 2020, the conclusion of a gross price agreement is not recommended. It is advisable to expressly include a net price provision in the agreement. A net price agreement is also preferable for consumers.
From the point of view of the supplier, a gross price agreement is preferable in the current situation since value-added tax, which is now lower, remains with the company as profit-increasing sales revenue. From the point of view of these companies, it is therefore now advisable to negotiate and/or maintain gross price agreements. However, it should be noted that net agreements are generally less conflict-prone in the context of the customer relationship.
Note: If suppliers now negotiate gross price agreements for recurring deliverables, it should be noted that any increase in the value-added tax rate will generally be at their expense. This is why gross price agreements for recurring deliverables are not recommended, although special compensation claims may exist in this regard (more on this later). The same applies to deliverables where the time of performance cannot be determined with certainty and may not take place until after 31 December 2020.
Implied net price agreement
A net price agreement can also be implicitly made, i.e. solely by conclusive conduct, if, for example, the contract lists two separate amounts, one of which is referred to as ‘value-added tax’. The essence of the net price agreement is that the value-added tax is intended to constitute an independent remuneration component.
In a gross remuneration agreement, in contrast, value-added tax is a dependent remuneration component and therefore does not become the subject of an independent contractual claim. The ‘value-added tax risk’ or – in the case of a reduction – the ‘value-added tax opportunity’ remains with the supplier.
In the absence of an express agreement on remuneration, for example, in contracts for recurring deliverables, the type of remuneration agreement must be interpreted on the basis of the actual circumstances of the given case.
Recovery of overpaid value-added tax
The existence of a net or gross remuneration agreement, or the result of the above interpretation, determines whether any overpaid value-added tax can be reclaimed.
A reclaim of unintentionally overpaid value-added tax is in principle only possible for the payer in the case of a net price agreement if the supplier unjustifiably assumed a gross price agreement. The amounts thus overpaid can be reclaimed from the supplier in accordance with and subject to the general principles of the law of enrichment (section 812 et seqq. of the German Civil Code (BGB, Bürgerliches Gesetzbuch)).
Special feature: Compensation claims for long-term contracts – section 29 of the Value-added Tax Law (UStG, Umsatzsteuergesetz)
With regard to long-term agreements which were concluded more than four months before the amendment of the law (1 July 2020), i.e. before 1 March 2020, but the performance of which will not take place until after 30 June 2020, the parties to the contract may be entitled to appropriate compensation for the respective additional or reduced payment obligation.
However, the parties to the agreement may not have made any other contractual agreement (for instance, in the form of a waiver of claims for compensation in the event of an increase or reduction in the value-added tax rate). It should be noted that deviating contractual provisions can also be implicitly agreed upon. A claim for compensation does not apply if fixed prices were agreed upon. This provision otherwise applies analogously to services after 31 December 2020.
Note: The contractual partner also has the option of retaining the entire invoice amount on the basis of the agreement or the invoice showing incorrect value-added tax until the agreement or the invoice has been adjusted (section 273 BGB).
Side note – invoice correction
However, if incorrect value-added tax is shown, the amount of tax payable can be corrected at any time by notice to the customer. When correcting the tax amount, the supplier can and must also correct the additional or reduced amount of tax by notice to the tax office.
The changes in the invoice must be made by the invoice issuer. The invoice recipient is not permitted to complete the missing information himself – not even if no tax was shown at all or if the tax must be calculated from gross amounts. This also applies if the invoice issuer has agreed to the ‘change’.
This article was written in cooperation with the following colleague:
Sascha Wegener from Duisburg (sascha.wegener@pkf-fasselt.de / +49 203 30001 146)
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