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Refund of German VAT: Retroactive Correction of Invoices

Mar 31, 17 • Value Added TaxNo Comments

Under German tax law, value added tax on services received is refunded to companies. The prerequisite for a refund is that the invoice submitted is formally correct. As German VAT tax law places high requirements on invoices, however, suppliers frequently fall into errors. An incorrect invoice then leads to the refund of the VAT amount paid being denied to the recipient of the service.

Incorrect invoice may be corrected

So far, an entrepreneur, who accepted the refund despite a deficient invoice, had to reimburse the amount unlawfully received including 6% interest per year to the tax authority. Although the supplier could correct the invoice by adding the required details, such correction had no retroactive effect on tax obligations. As a consequence, the entrepreneur was not entitled to receive the refund until he was able to present a valid invoice. As sometimes, several years could elapse between the initial tax refund and the discovery of the defect by the tax authority, the interest levied was especially disadvantageous for companies.

No interest for late payment under new regulation

In a recent judgment, the Federal Fiscal Court (BFH) found that the correction of invoices had a retroactive effect to the date of the initial invoicing. As a consequence, the entrepreneur is now treated as if he was entitled to the VAT refund from the beginning. Thus, the advantage of the change in case law for companies is that they will no longer have to pay interest for late payment should an invoice issued to them be incorrect.

Minimum requirements for initial invoice

The main criterion for the admissibility of an invoice correction is that the initial invoice contains at least details about the issuer, the recipient, the invoice amount, the VAT amount and a description of the service provided. If this minimum information is provided, the retroactive correction may be made until the conclusion of the last oral hearing before the fiscal court. If you have any queries regarding the preparation of a valid invoice or a VAT refund, WINHELLER’s experienced team of tax experts will be pleased to advise you.

Federal Fiscal Court, Judgment of 10/20/2016, file reference V R 26/15

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Johannes Fein

Attorney Johannes Fein works in WINHELLER's departments of Tax Law and Tax Advisory and the Law of Nonprofit Organizations. He is a legal and tax counsel for nonprofit organizations, trade- and professional organizations, nonprofit limited liability companies and cooperative associations as well as foundations.

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