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Germany: VAT relief included in draft legislation (COVID-19)

Germany: VAT relief included in draft legislation

Measures being proposed in a draft legislation are intended to provide certain tax relief measures and enhanced liquidity in response to the coronavirus (COVID-19) pandemic.

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The draft law includes two measures specifically concerning value added tax (VAT) relief:

  • First, the VAT rate for restaurant and catering services provided after 30 June 2020 and before 1 July 2021 (with the exception for drinks) would be reduced from 19% to 7%.
  • Second, the current transitional regulations with regard to § 2b German VAT Law (concerning new rules for certain “legal entities under public law”) to handle the COVID-19 pandemic would be extended until 31 December 2022.

In addition, a new § 27 (22a) UStG would allow flexibility in light of the COVID-19 implications and specifically would concern the timing of the transition rule application, given that a small number of “legal entities under public law” submitted a declaration before 2016 and have already carried out the necessary adjustment for 1 January 2021; these entities could begin with the application of § 2b UStG by making a corresponding “retraction” in 2020. In contrast, other “legal entities under public law” would be granted up to two more years for the adjustment period.

Read a May 2020 report [PDF 307 KB] prepared by the KPMG member firm in Germany.

Other recent VAT developments that may affect businesses in Germany include the following items:

  • Postponement of e-commerce rules until 1 July 2021 recommended (European Commission)
  • Subsidiary as a fixed establishment (CJEU, judgment of 7 May 2020 ‒ case C-547/18 ‒ Dong Yang Electronics)
  • Change to the basis of assessment in the case of “discounts in points” systems (BFH, decision of 16 January 2020, V R 42/17)
  • Changes to the input VAT refund procedure from 1 January 2020 (BMF, guidance of 7 May 2020 - III C 3 - S-7359 / 19 / 10010 :001)
  • VAT on the operation of a gaming machine (BFH, decision of 11 December 2019 – XI R 13/18)

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