Proof of status as a VAT-taxable person in the reverse charge procedure - BFH ruling V R 20/21 of 31 January 2024

For the VAT liability to be shifted to the recipient of the supply (reverse charge) in the case of services provided by a foreign entrepreneur, the recipient must be a VAT-taxable person. Ideally, the supplier will determine whether this is the case by requesting the VAT ID and checking its validity. Other proof of VAT status is permissible but often involves a certain amount of negotiation with the tax office.

Facts of the case  

Company X, a VAT taxable person based in another EU Member State, operated an online marketplace in 2015, the year of dispute. X invoiced the German sellers on this platform a turnover-based sales fee. This fee included German VAT if they were non-taxable persons and omitted the VAT (but included a reference to the reverse charge procedure) if the sellers were taxable persons. The subject of the legal dispute was the question of how to prove the VAT status and to what degree the tax office and the tax court are obliged to investigate  the VAT status.

Sellers could register on this marketplace with either a private account or a commercial account (as a taxable person).  By default, sellers were created as private individuals.  If they wanted to register as a taxable person, they had to enter their name, address and legal form, industry, commercial register number and VAT ID, among other things. X checked the validity of newly created VAT IDs in the VIES database on a weekly basis. Additionally, X checked all VAT IDs on a quarterly basis.

Until the end of 2014, X only treated sellers with a valid VAT ID as taxable persons.  Starting in 2015, it used a different procedure: If the seller registered as a business did not provide a VAT ID or the VAT ID was invalid, X determined the VAT status based on three self-defined criteria, of which fulfilment of any one of these was sufficient for X to classify the seller as a taxable person.

  • Number of sales exceeds a certain number
  • Sales fees exceeding a certain level
  • Registration on a special platform reserved for commercial traders

Disputes at the level of the tax office and the tax court

During a tax audit, the tax office took the view that the reverse charge procedure was not applicable without a valid VAT ID for the recipient. The VAT IDs subsequently submitted by X did not pass a random check by the tax office. The tax office assessed additional VAT for all recipients lacking a VAT ID.

The tax court ruled that the recipient's valid VAT ID was not a prerequisite for the reverse charge procedure.  The criteria developed by X for determining VAT status were plausible. However, the tax court could not identify the recipients without a VAT ID and was not convinced that X had verified the user identities. X bore the burden of proving the VAT status, as the reverse charge mechanism was an exception that favoured X. However, for the valid VAT IDs that X subsequently submitted, it did not owe any VAT. As the tax court could not analyse the data in this respect, it was entitled to estimate the proportion of non-taxable persons and the tax court chose a quota of 50%.

Decision of the BFH (Federal Fiscal Court in Germany)

The use of a valid VAT ID by the recipient is not relevant for the transfer of the tax liability in accordance with § 13b (5) sentence 1 clause 1 UStG (German VAT Code), as neither this provision nor the corresponding Art. 196 of the VAT Directive require this. The only requirement is that the recipient of the service is a taxable person.  Conversely, this also results from the fact that the VAT ID is expressly required for the application of the reverse charge procedure to non-business legal entities.

For the tax liability to be reversed, the service recipient must be sufficiently identifiable. However, the tax court neglected its duty to clarify the facts and wrongfully merely estimated the proportion of taxable persons among the service recipients. The tax court should at least have performed random checks of the data and, if necessary, requested further information. The volume of data involved does not release the tax court from this obligation. There is no provision that imposes a specific form of proof on the supplier. It is true that the reversal of the tax liability works in favour of the supplier, the latter bears the burden of proof. However, this only comes into play if the facts of the case cannot be clarified.  The supplier is also not obliged to check the recorded information and documents relating to the service recipients to determine whether these objectively or conclusively indicate the VAT status.  However, the information is subject to review by the tax office.

As a result, the tax court is now obligated to review the facts and then reach a new decision.


Proving the VAT status of the service recipient is an ongoing problem.

Experience shows that the tax authorities, as in this case, often focus exclusively on the VAT ID, even though the law does not require it. This is understandable, as it is the simplest form of proof (even if the tax authorities sometimes issue a VAT ID without carefully checking whether the applicant is actually conducting a business activity). Therefore, the recipient’s VAT ID should always be the first choice for suppliers wanting to verify the VAT status. It is therefore crucial that the validity be closely monitored.

However, it should always be borne in mind that the service recipient can also be a taxable person without having a VAT ID. If the lack of status as a taxable person would result in the supplier being liable for VAT, the safest option for the supplier would be to assume – in case of doubt – that the recipient is not a taxable person. Naturally, however, there are also situations in which this method of shifting the risk to the recipient is not an option, such as cases involving an affiliated company. In cases such as these, the VAT status must be examined in detail.

In a situation in which the supplier has assumed that the recipient is a taxable person and must defend this vis-à-vis the tax authorities and/or before the tax court, this judgement can be a good aid in the negotiations. Courts and the authorities should not take the easy way out here and should, above all, only estimate the proportion of non-taxable persons among the service recipients if this proportion cannot be accurately determined.


Nadia Schulte