At the beginning of 2019 the new Sec. 22f, 25e UStG implemented a liability of online-marketplace providers for German VAT owed by online traders selling on their marketplaces. Since 1 March 2019 the first level of liability is in force. Online traders from third countries must now speed up to avoid getting banned from the major online-marketplaces.
On 1 January 2019 Sec. 22f and 25e of the German VAT Code (UStG) entered into force. The rules state that providers of online-marketplaces can be held liable for German VAT due but unpaid by online traders which sell their goods via the online-marketplaces. After an interim period until 28 February 2019 the new liability rules became now effective for VAT owed by online traders from third countries. Therefore, such traders have a substantial risk to be banned from all online-marketplaces that give access to customers in Germany.
Introduction to the new liability rules
According to Sec. 25e UStG everyone who runs an online-marketplace can be held liable for German VAT that is due but unpaid by an online trader selling via the marketplace. The providers can in general avoid this liability if they have a valid tax certificate within the meaning of Sec. 22f UStG for each online trader selling goods via their online-marketplace. The German tax authorities grant a tax certificate if all legal preconditions are met. Especially, entrepreneurs must be tax or VAT registered to apply for such certificate. Since many foreign online traders have not yet been registered there is currently a run on the competent tax authorities.
Of course, the new liability rules did not implement a new obligation to register for VAT purposes in the event an online trader only renders supplies which are not subject to German VAT. Nevertheless, the online-marketplace provider must prove that the online trader is not obliged to VAT register in Germany in such cases.
Dilemma for online traders with direct supplies
Since the providers of online-marketplaces can avoid their liability for foreign VAT by presenting a Sec. 22f UStG-tax certificate to the tax administration the major providers asked all third country based online traders selling goods via their marketplaces to hand over the certificate latest until 28 February 2019. Further, the providers announced that every non-compliant online trader will be banned from the marketplace.
Unfortunately, this announcement covered inter alia online traders from third countries who only render supplies in the so called direct supply. Such traders sell their goods to customers in Germany and dispatch the goods directly from third country stocks to the customers. As long as the online trader is not responsible for import VAT declaration such online traders do not render taxable supplies in Germany. Consequently, they cannot register and thus not apply for a Sec. 22f UStG-tax certificate. In such situation the online traders can only try to convince the provider that they do not need a certificate as they are not obliged to register for VAT purposes in Germany. From our experience the major online-marketplace providers are not very cooperative in such cases. Luckily, first reactions show that online traders concerned have not (yet) been banned.
What other online traders must do now
All online traders who do not render direct supplies from third countries or in specific situations other EU member states must register and apply for a Sec. 22f UStG-tax certificate. As a consequence of an administrative letter it is sufficient to avoid being banned from online-marketplaces if the online trader applied for the certificate until 28 February 2019 and receives it latest until 15 April 2019. But even if this deadline has been missed we highly recommend applying for the tax certificate and a previous VAT registration where needed as soon as possible. This obligation does not only affect online traders from third countries but online traders from the EU and Germany as well. The new liability rules for online-marketplace providers affect them as of 1 October 2019 and practice shows that due to the mass of applications the tax authorities need weeks or even months to grant the certificates.
Authors: Melanie Weist, Simon Pommer, LL.M.