Practical guidance from the Federal Ministry of Finance (BMF) on e-invoicing

VAT and technical consequences of a business rule error

Business rules are technical provisions for verifying the logical dependencies of the information contained within a file. Errors may consist of missing or contradictory details. Example: The calculated VAT amount does not correspond to the VAT rate.

The Federal Ministry of Finance (BMF) clarifies that, whilst from a technical perspective a breach of a business rule means that the file is no longer an e-invoice, as it does not comply with the EN 16931 series of standards, for VAT purposes this file – which contains a business rule error (but not a formatting error) – nevertheless constitutes an e-invoice in principle. The key factor here is that all mandatory invoice details are included and correct. A business rule error therefore does not, in itself, preclude input VAT deduction. This creates an additional verification burden for the recipient: if the validation tool reports an error, they must decide whether to reject the invoice or whether the error is irrelevant for the purposes of input VAT deduction. Those with sufficient market power may agree with their business partners that all invoices flagged as incorrect by their own tool must be corrected, in order to make life easier for themselves. However, this is unlikely to be possible in every case.

Mandatory invoice details

All mandatory invoice details must be included in the structured part of the e-invoice. Any additional information, such as timesheets, may be submitted in an annex. For the mapping of mandatory VAT details to the BT (Business Term) and BG (Business Group) fields, the BMF recommends the mapping tables provided by KoSIT and FeRD. Companies are advised to aim for a high standard in this regard, as the use of free-text fields hinders electronic readability and would thus essentially undermine the very concept of e-invoicing. 

With regard to construction works, the BMF acknowledges that, due to technical limitations that currently still exist, the bill of quantities cannot be included in the structured part of an e-invoice. It is therefore not considered a breach if the structured part contains only the individual trades with the corresponding totals as the description of works.

Advance payment invoices

Advance payment invoices issued before the e-invoicing obligation comes into force do not have to be issued as e-invoices, even if the work is carried out after that date. As regards the final invoice, the deduction of partial payments received may, under certain conditions, be set out in an unstructured annex.

Status as a VAT taxable person

The e-invoicing obligation applies only if the recipient of the supply is a VAT taxable person (and receives the supply for their business). The BMF stipulates that anyone who did not know or was not expected to know that the customer is a taxable person – and that the e-invoicing obligation therefore applies – does not breach their obligation to issue an e-invoice if they issue an alternative invoice instead.

In bulk customer business involving ongoing supplies and a mixed customer base, the business operator should only verify the customer’s status as a taxable person at the start of the contractual relationship and when changes occur, not in between.

The full implications of these ‘simplifications’ are not entirely clear, as the breach would currently be exempt from sanctions anyway; more on this shortly.

Sanctions

If an alternative invoice is issued despite the e-invoicing obligation, this does not constitute an administrative offence under Section 26a(2)(1) of the German Value Added Tax Act (UStG). As, according to the BMF circular of 15 October 2024, (under strict conditions) a correct non-electronic invoice entitles the recipient to deduct input VAT despite the e-invoicing obligation, businesses can currently evade the e-invoicing obligation with relatively little risk of sanctions – although, of course, considerable resistance from the relevant tax offices is to be expected, so systematic circumvention of the e-invoicing obligation is strongly discouraged. It is also to be expected that the legislator will make further amendments in this regard. Furthermore, it should be noted that contractual partners are demanding the issuance of e-invoices.

Invoice corrections

When using an e-invoice, corrections or additions – provided there is a prior agreement and a specific and unambiguous reference to the original invoice – may also be made in the form of a credit note issued by the recipient of the service.

Autorin: Nadia Schulte