The energetic transformation and digitalization of industry are increasingly pushing into German and international tax law with their consequences. ProduktionNRW has offered – after the corona-induced break – an exchange of experiences in presence for the North Rhine-Westphalian mechanical and plant engineering industry on May 24, 2022 to discuss these changes in detail.
Tax policy – report from Berlin
First, Ulrich Meißner, VDMA Tax Officer, presented an overview of the new political guidelines from Berlin. The focus was on the planned changes of the new German government and their impact on the machinery and plant engineering industry. In the coalition agreement, the SPD, Bündnis 90/Die Grünen and FDP have committed themselves in the area of taxes, for example, to reducing bureaucracy and digitization (such as increasing threshold values) or the introduction of a global minimum taxation.
In the area of VAT fraud, the new government also plans to introduce an electronic reporting system to be used for creating, checking and forwarding invoices. According to this, invoice data must be sent to the administration for approval before being transmitted to the customer – as is the case in Italy or France (planned), for example. For Germany, it remains to be seen whether the introduction of such a new system will succeed without any problems.
Innovations regarding German withholding tax
Subsequently, Florian Schmidt, speaker VDMA Taxes, went into the regulations on the German withholding tax and gave a short outlook on planned innovations. In Germany, companies are confronted at various points with the challenge of recognizing the obligation to carry out withholding tax deduction and to do this correctly. Otherwise, there is a risk of tax liability for the taxes not withheld. The focus was on two areas: tax withholding in the context of software licenses and dealing with construction withholding tax.
For example, if a company in the mechanical and plant engineering sector pays a temporary license fee to a foreign software company, a withholding tax may be levied for such a temporary transfer of rights – such as with the Microsoft 365 package. Legal inaccuracies exist in the area of licenses – especially with regard to the 2021 copyright reform that has taken place – in the area of foreign software contract development. Here, the Federal Ministry of Finance (BMF) wants to provide more clarity and has already presented a first draft for a new BMF letter.
Another area relevant to withholding tax is construction services, where this must be taken into account in the form of construction withholding tax. The construction withholding tax is applicable to construction work performed in Germany. Accordingly, construction services refer to the construction, repair, maintenance or modification as well as removal of structures. However, the terms “construction work” and “construction work” are being broadened more and more, particularly by case law, as a result of which more and more sectors, such as mechanical engineering and plant construction, are coming into the focus of this tax deduction, even though they are not originally part of the construction sector that is actually affected. There is therefore a risk that the role of the construction withholding tax will be neglected in operational practice. Work instructions and audit routines should therefore be created as part of an operational tax compliance system.
The latest from the field of sales tax
Finally, Meißner presented new developments on sales tax. In the last two years, the tax authorities have issued a large number of BMF letters on the subject of sales tax. The most important topics for the industry were addressed at the event. These included the place of performance of training courses, sales or insurance tax on guarantee commitments and the entrepreneurial status of supervisory board members.
In the area of “place of performance for training courses”, the plant and mechanical engineering sector is particularly affected by company training courses. According to the BMF (June 9, 2021), the place of general training, even if it is not open to the general public, is the place where the training is held. If such events are offered abroad, an obligation to register abroad generally arises. Customers who receive training in Germany will in many cases have to pay German sales tax in the future.
In the context of sales or insurance tax on warranty extensions, the BMF decided on May 11, 2021 that warranty services will in many cases no longer be subject to sales tax but to insurance tax in the future. Since an input tax deduction, as is usual for sales tax, is not possible for insurance tax, this will result in a definitive burden for customers in the mechanical and plant engineering sector. Possible solutions could be either to offer the goods exclusively only with extended warranty, to pass on the sale of the business to a group-owned or third-party insurance company, or to offer the sale only with the conclusion of a full maintenance contract.
The activity of a supervisory board member was classified as self-employed under the previous VAT Act and was therefore subject to VAT. In a BMF letter dated July 8, 2021, it is stated that a member of a supervisory board who acts on the basis of a non-variable fixed remuneration does not bear any remuneration risk and therefore cannot act independently within the meaning of the VAT Act. However, the letter leaves open which performance components are to be considered variable. Regarding this letter, the tax authority has followed up on some details requested by VDMA.
The event was offered by ProduktionNRW. ProduktionNRW is the competence network of mechanical engineering and production technology in North Rhine-Westphalia and is run by the VDMA NRW. ProduktionNRW sees itself as a platform for networking, informing and marketing companies, institutions and networks among themselves and along the value chain. Significant parts of the services provided by ProduktionNRW are funded by the European Regional Development Fund (ERDF).