Germany VAT Refund Rules Too Strict, Break EU Rules: Commission

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By Jabeen Bhatti

The European Union said it may sue for Germany’s failure to properly refund value-added tax to “taxable persons” in other countries in the bloc, a situation attorneys say is a familiar and frustrating one.

In a July 19 Reasoned Opinion—reserved for instances of potential infringement of EU law—the European Commission asked Germany to bring its VAT refund rules in line with EU law, specifically the VAT Directive ( 2006/112/EC) and the Refund Directive (2008/9/EC).

It gave the country two months to comply or said it would consider legal action before the EU Court of Justice.

“In some cases, Germany currently refuses to refund VAT applied for by taxable persons established in another Member State as it considers that the information provided is insufficient without having requested additional information from the applicant,” the EC wrote in a statement because the opinion isn’t public. “This leads to refunds being denied even when applicants fulfill the substantive requirements as laid down in EU law.”

The commission already warned Germany over VAT refunds in a formal notice letter sent July 22, 2016, according to the commission’s database. The formal notice letter isn’t publicly available.

The German Ministry of Finance, responsible for tax matters, didn’t immediately respond to a request for comment.

Be Pushy to Get Refund

Gunnar Knorr, an attorney with Oppenhoff and Partner in Cologne specializing in VAT, says the VAT refund issues come up during specific phases of acquisitions or when a business doesn’t have a fixed address in Germany. He added that it’s possible to get the refund but only with tremendous effort, which isn’t fair to clients.

“You do tend to get it if you are really pushy—it requires a lot of effort and a lot of effort means there is quite a cost to getting the refund, which often clients don’t want to do because in essence they shouldn’t be forced to pay for it,” he told Bloomberg Tax July 20.

“It’s clearly laid out in German law but the law is effectively used in a rather Prussian manner,” he added, referring to the process of obtaining VAT refunds for foreign-based tax payers.

“You have to provide all the information and if you don’t provide all the information, no one is going to tell you didn’t and if you don’t follow up, they will tell you, ’look, you didn’t provide all the information therefore we denied the application and that’s it.’ So if you don’t push or follow up, you won’t get it.”

To contact the reporter on this story: Jabeen Bhatti in Berlin at correspondents@bloomberglaw.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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