§ 14c- VAT in the case of negative VAT statement / Use of supplementary information - BMF circular letter dated 18 April 2023

Because every invoice showing VAT bears the risk of input VAT deduction, VAT is owed solely because of the statement in the invoice. However, there are always situations in which the design of the invoice or the overall circumstances could lead someone to the conclusion that the recipient might believe that he/she is entitled to deduct input VAT. After the Federal Fiscal Court (Bundesfinanzhof, BFH) ruled on a case concerning the statement of negative VAT amounts and the inclusion of supplementary documents, the Federal Ministry of Finance (Bundesministerium der Finanzen, BMF) implemented this ruling in the administrative guidelines to the German VAT Code (UStAE) but modified the BFH's statements.

The facts

The basis for the BMF letter of 18 April 2023 is the BFH ruling of 26 June 2019, XI R 5/18. In the underlying case, there was an "annual conditions agreement" between a supplier of goods and a customer. According to this agreement, the customer was to receive certain bonus payments. It is undisputed that these were reductions in the VAT assessment basis for the supplier's supplies of goods. On the other hand, so-called “advertising allowances” were also agreed upon, which, as was also undisputed, were payments for advertising services that the customer had provided to the supplier.

The customer issued the supplier a document called a "debit", which referred to the annual conditions agreement and was apparently an invoice for advertising allowances, i.e., for an advertising service provided by the customer to the supplier. The customer added a small dash to all the amounts mentioned, which were later disputed as to whether they were minus signs or hyphens. The customer paid the VAT shown and the supplier claimed the input VAT deduction.

In the meantime, insolvency proceedings had been opened against the customer's assets.

A tax audit of the supplier then revealed that the amounts settled with the "debit" actually related only in part to fees for advertising services. The other part related to the agreed bonuses, i.e., reductions in the tax base of the original supplies of goods.

The insolvency administrator argued that the document issued by the customer gave the impression that the full amount was being invoiced for advertising services provided by the customer to the supplier. The small dashes behind the amounts were hyphens, not minus signs. Thus, in part, there was an unjustified VAT statement according to § 14c para. 2 UStG, because the “debit” contained a VAT statement, which, as far as bonus payments were concerned, however, was not based on a supply by the customer. The tax office would have to formally approve the customer’s correction of the document it had issued, which would result in a claim against the tax office in favour of the insolvency estate. The tax office was of a different opinion: insofar as the document referred to the bonus payments, the tax base for the original delivery of goods was automatically reduced, eliminating the need to issue a corrected document or even obtain approval from the tax office. 

The insolvency administrator, therefore, filed an action against the tax office for the granting of the approval pursuant to § 14c (2) UStG. After the tax court largely upheld the action, the tax office appealed to the BFH.

BFH decision

According to the BFH, references in the invoice to other documents must be taken into account when checking whether the invoice’s information is incorrect. This conclusion is based on the ECJ decision "Barlis 06". If the tax court had taken into account all the details of the annual conditions agreement referenced in the invoice, it would have recognised that the "debits" related to both advertising cost subsidies and the bonus. The "debits" thus do not incorrectly or unjustifiably account for advertising services, but correctly for the bonus.

Irrespective of this, it had to be taken into account that a VAT debt according to § 14c UStG could not arise because the document did not state positive amounts but rather negative ones. There was no doubt that the small dashes were not hyphens but rather minus signs. A negative tax was not a declared tax within the meaning of § 14c UStG.

The BFH did not need to decide whether something different would apply if the issuer of a self-billing invoice added a minus sign to the amounts to indicate that he/she (as the recipient of the supply) owed the amount mentioned to the supplier.

BMF issues clarification in a letter dated 18 April 2023

According to the BMF's interpretation, no § 14c tax should arise if the issuer settles for a reduction in remuneration and adds a minus sign to underscore this fact. However, the BFH ruling does not indicate that the minus sign is mandatory.

When checking whether a document has accounted for reduced charges, supplementary documents can only be taken into account if the document refers to them. There was, in fact, such a reference in the "debit" in the BFH case. However, the BFH did not comment on whether this reference was mandatory. The fact that the BFH justified its decision by applying the ECJ decision "Barlis 06", among others, speaks against this. Here, the ECJ ruled that it is sufficient if the tax authorities have all the information necessary to determine the material conditions for the deduction of input VAT.

According to the BMF, the BFH ruling should not apply to self-billing invoices in which the recipient of the supply settles a received supply. This means that a the recipient of the self-billing invoice can have a tax liability even if the issuer has marked the amounts with a minus sign. However, the BFH had expressly left this question open.

Practical implications

What makes this case special is that, for insolvency law reasons, it would have been favourable for VAT to have accrued under § 14c UStG. Normally, it would generally be the other way around. Accordingly, it cannot be ruled out that the BFH's reasoning was motivated by a desire to prevent the enrichment of the insolvency estate, which would have been perceived as inequitable. Nevertheless, the principles of the ruling are generally applicable.

In the case described here, there was a reduction in the remuneration for the supply of goods with regard to the bonus, which, due to the unfortunate way it was presented in the "debit", gave the impression of being remuneration for the advertising service. This occurs mainly in the retail sector, for which the contractual combination of advertising allowances and bonuses is typical. However, the problem of mistaken or ambiguous credit notes or self-billing invoices could be of interest in other sectors as well. While in English a clear distinction between "self-billing invoice" and "credit note" is common, in German the term "Gutschrift" denotes both situations: the settlement of the recipient for a supply received by him/her, and the "crediting" of charges by the supplier due to defects, returns, and such.  Caution is still advised here, and a clear distinction must be made to avoid confusion. A self-billing invoice can, in any case, according to the BMF, also lead to a § 14c tax for the non-objecting recipient, even if the amounts are marked with a minus sign. Recipients should check these carefully and object if an error is detected. In the event of a dispute, the BFH ruling opens up further room for arguing for the use of documents beyond just the invoice as supplementary evidence of the supply chain.

Dated: 11 May 2023


Nadia Schulte
+49 211 83 99 330

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