Federal Fiscal Court on § 14c: Tax in the event of conflicting details

Facts

The plaintiff conducted clinical studies on behalf of pharmaceutical companies. In this context, it was also responsible for paying fees owed by these companies to the doctors involved in the studies. The plaintiff therefore issued credit notes to the doctors on behalf of its clients which included VAT. The plaintiff requested the amounts payable from its clients by means of so-called "payment requests" showing VAT, and recorded the corresponding amounts as transitory items. The payment requests themselves did not contain a description of services, but referred to other documents in the subject line by listing a "Request no.", an "Offer no." of the plaintiff, an "Order no." of the respective client, a brief description of the "Project" and a "Delivery date".

The tax authorities and, subsequently, the tax court, took the view that the plaintiff owed the VAT shown in the payment requests pursuant to § 14c (2) of the German VAT Act (UStG) due to unjustified VAT statements. The plaintiff objected that these were not full invoices because they did not contain a description of services. Even if one were to take into account the documents referred to in the payment requests, which described a service, it was clear from these that the clients were simply to be informed of the amounts to be transferred.

BFH decision

Referring to its previous case law, the BFH held that a tax liability under § 14c (2) UStG does not require that an invoice shall contain all mandatory information specified in § 14 (4) UStG. However, the requirements of an unjustified tax statement pursuant to § 14c (2) UStG are at least fulfilled if the invoice states the issuer of the invoice, the (presumed) recipient of the supply, a description of the supply, the remuneration and a separate statement of VAT. Reference to other documents must be taken into account. This is also required according to the ECJ ruling in Barlis 06 (C-516/14), based on which (in connection with input VAT deduction [author's note]) not only the invoice itself but also additional information provided by the taxpayer must be taken into account.

In the present case, the documents referred to had actually made clear that the plaintiff only acted as a paying agent and had not itself rendered any supplies. However, the VAT statement contradicted this, as a result of which the plaintiff created the risk of an unjustified input VAT deduction. This risk also materialised in that some clients did not wait for credit notes, but claimed the input VAT deduction as soon as they received the payment requests.

Furthermore, the BFH clarified that it was not the doctors but the plaintiff which was liable for the tax under § 14c as the invoice issuer within the meaning of § 13a (1) No. 4 UStG. Unlike in ECJ case C-442/22, in which the employer was identified as the debtor of VAT incorrectly declared by an employee, the doctors in this case did not breach their duty of care.

Analysis

In its ruling of 17 February 2011 (V R 39/09), the BFH had already clarified, through an express change of case law, that an invoice does not have to contain all the mandatory information under § 14 (4) of the UStG in order to trigger a § 14c tax liability. Because, in mass transactions, the tax authorities are unable to prevent every unjustified input VAT deduction through a detailed examination of invoices, the abstract risk that a document could induce the recipient to claim input VAT deduction is sufficient.

§14c UStG is a harsh instrument, as this case shows once again. Since the information contained in the invoice itself is supplemented by the use of other information, for the issuer the degree of risk quickly becomes difficult to quantify. In the present case, disclosure of VAT completely invalidated the many circumstances affirming that the plaintiff was not invoicing its own supply. In general, it is therefore inadvisable to indicate a VAT amount anywhere if no supply is actually to be invoiced.

It is worth noting that the BFH made a decision here based on § 126a of the German Fiscal Court Rules (FGO) without oral proceedings. This is only possible if the five judges unanimously consider an appeal to be unfounded and do not consider oral proceedings to be necessary. For the Federal Fiscal Court, therefore, this was a clear case, despite the aforementioned considerations negating an act of supply by the plaintiff.

Author: Nadia Schulte