Fictitious services of a commission agent VAT exempt without personal characteristic - BMF circular letter dated 9 June 2021

Hotel service procures opera tickets for guests - service commission

In the BFH case, a hotel service procured opera tickets for its guests in its own name. The hotel charged the guests for these tickets plus a surcharge. The BFH first stated that the sale of a ticket was not a supply of goods but rather a supply of service because the economic content was the attendance of an event.

The BFH then clarified the question of whether a service commission pursuant to Section 3 no. 11 of the German VAT Code existed. In addition to acting in one's own name, this also requires acting for the account of a third party. The latter resulted from the fact that the guests had to pay for the tickets even if they ultimately could not or did not want to attend the performance. In addition, the hotel service only procured tickets on the guest's order. Thus, the economic risk always lay with the guest.

In the case of a service commission, a chain of services is deemed to exist pursuant to Section 3 para. 11 of the German VAT Code. Applied to the case in question, this means that the opera provides a service to the hotel service (to the commission agent), and the hotel service provides a service with the same content to the guest (to the client) at the same time. The commission agent's business supply service under civil law does not exist for VAT purposes and must not be invoiced as such.

Solution according to the previous view of the tax authorities: VAT taxable

The tax authorities had previously assumed that, apart from the time and the content of the supply, both services must be assessed separately according to the VAT rules applicable to them. If a rule is linked to a personal characteristic, the rule only applies to the service provider in the chain to whom this characteristic applies. In the BFH case, this would mean that Section 4 no. 20 letter a of the UStG requires for the VAT exemption that the service provider is an event organiser (specifically: a theatre). This applies to the fictitious performance of the theatre to the hotel service, but not to the fictitious performance of the hotel service to the guest. Accordingly, the latter would not be VAT exempt according to the previous opinion of the BMF.

BFH: VAT exempt - even the personal characteristic of being an event organiser is feigned

However, the BFH ruled otherwise: The fiction of referenced in Section 3 para. 11 of the German VAT Code refers to the service itself, but not to the person providing the service. This is in line with EU law, as Article 28 of the VAT Directive is broadly defined and does not contain any restrictions. Accordingly, the commission agent was also deemed to be an event organiser. This fiction extended not only to the price of the ticket but also to the surcharge.

The BMF has now amended Section 3.15 (3) of the VAT Application Decree accordingly and added a new sentence 3. However, it only refers to the VAT exemption according to Section 4 no. 20 letter a of the German VAT Code. For all other personal characteristics, it is apparently to remain the case that they are not feigned in the chain of services. One might think here, for example, of the status of a small undertaking according to Section 19 of the German VAT Code or the status of a legal person under public law under Section 4 nos. 22 and 23 of the German VAT Code.

Recommendation: Check ticket sales

The BMF letter is to be applied in all open cases. Commission agents who procure admission tickets must invoice them VAT exempt in the future. They will owe the VAT from invoices falsely showing VAT in accordance with Section 14 c of the German VAT Code. The recipient of the service (if this person is a VAT taxable person) is not entitled to an input VAT deduction.

The fact that the BMF restricts the fiction of personal characteristics to Section 4 no. 20 letter a of the German VAT Code is somewhat irritating. The principle that Article 28 of the VAT Directive does not provide for a restriction seems generally transferable to all personal characteristics. Commission agents who wish to apply a different VAT exemption linked to personal characteristics can, in our view, rely on this before the tax courts with good prospects of success. When submitting tax returns in this sense, however, we recommend disclosure to the tax office.

(Dated: 08.07.2021)