Compliance and Liability Provisions for Online Marketplaces With German Business – Far Reaching New German Government Proposal

Tax Law Update | September.13.2018

On August 10, 2018, the German government officially filed a new tax bill with the German parliament that is directed against VAT avoidance relating to supplies of goods with a German nexus over electronic ("online") marketplaces. The German parliament will debate this tax bill during H2 2018, and it is expected to become applicable to online marketplaces as of January 1, 2019.

Key elements of the bill's provisions are: (1) operators of online marketplaces ("operators") shall be obliged to fulfil new burdensome documentation duties regarding providers of goods ("providers") over their marketplace, (2) documentation duties shall apply if the shipment of the goods starts or ends in Germany, (3) to sanction these duties, operators shall become secondarily liable for VAT owed but not paid by these providers, and (4) the operator shall only be able to mitigate such liability for providers' VAT duties if the operator demonstrates that it has complied with relevant documentation duties.

The new rules are to be applicable alike to German and non-German resident operators of online marketplaces. As per the current law bill, operators may become liable for VAT in case of non-compliance with the new rules (1) as of March 1, 2019 for supplies of goods by non-EU (and non-EEA) resident providers over the platform, and (2) as of October 1, 2019 for supplies of goods by EU (or EEA) resident providers.

Duties of Operators of Online Marketplaces – Envisaged German Documentation

Documentation duties of operators to which the above German nexus criterion applies shall comprise each provider's:

  • full name and address, and
  • German tax number and potentially the German VAT-ID number.

Furthermore, in these cases the operator must:

  • register the point and destination of the shipment,
  • register the date and value of the supply, and
  • collect the provider's German tax certificate or, in the absence of such a certificate, contact the federal central tax agency (Bundeszentralamt für Steuern) to confirm that the provider has been registered and cleared by the German tax authorities. This essentially means that providers of supplies with a German nexus worldwide must register with the German tax authorities to enable the operator to comply with its documentation duties. 

In the case of registry of a provider as a non-taxable person with the operator, instead of the German tax number and the aforementioned certificate, the date of birth shall be registered.

The aforementioned documentation duties shall apply in relation to any provider worldwide upon registration with the marketplace to do business thereat if, from the operator's point of view, the provider may potentially effect supplies with a German nexus. On request, the operator has to provide the tax authorities with this information.

Envisaged German Secondary Tax Liability for Operators of Online Marketplaces

Operators can be held liable by German tax authorities for any German VAT that has arisen to a specific provider from a supply of goods over the operator's online marketplace and has not been discharged when due. The operator can mitigate liability if it can present the above-mentioned tax certificate or confirmation of the federal central tax agency, but not if it has, or, applying proper diligence, could have had, knowledge that the provider has not complied with its German VAT duties.

From the moment German tax authorities inform operators that a provider did not pay owed VAT, they shall also be held liable for the above-mentioned German VAT unless they prove within a reasonable period that this provider is no longer able to offer his goods and services on their marketplace.

If the provider does not have his domicile, usual place of residence, registered office or his center of management in Germany, the EU or EEA liability notices may be issued to the operator before an execution levied upon the movables of the provider has been attempted by German authorities.

Also noteworthy is that the operator will not be dealing with one single German tax office but may receive liability notices from multiple German tax offices in case of proven or alleged non-compliance.

What to Do Now?

Operators of online marketplaces with business with German nexus over the platform should prepare for implementing adequate processes for these German tax compliance duties. Such processes may involve very relevant changes in the way providers are accepted and their data managed by the operator.

Obviously, the rules are not yet set in stone, and there might be changes to the bill during the legislative process, but there are currently no strong indications that the bill will not pass.

In the meantime, we will keep you informed and are available to answer any questions regarding this topic.