Country-specific updates: Germany

German Federal Ministry of Finance restricts VAT exemption for transport services

As of 1 January 2022, the German Federal Ministry of Finance will significantly restrict the previous scope of the VAT exemption for transport services. Previously, all transport services in connection with  exports were VAT-exempt. This now only applies to services that are provided directly to the supplier or buyer of the goods. In Germany, the transport of objects for export is exempt from VAT under certain conditions (Section 4 No. 3 lit. a sub lit. aa of the German VAT Act).

The change is based on the European Court of Justice’s judgment in case C-288/16 L.Ĉ. regarding the scope of the VAT exemption for transport services in connection with exports. A logistics service provider was commissioned by the vehicle supplier to transport vehicles from Latvia to Belarus. The logistics service provider, however, used a subcontractor to actually carry out the transport.

In its judgment the CJEU decided that only the transport services provided directly to the supplier or recipient of the goods are covered by the VAT exemption. Therefore, the service performed by the subcontractor to the logistics service provider is to be classified as taxable for VAT purposes.

The German Federal Ministry of Finance has already implemented the principles of the CJEU ruling in its letter of 6 February 2020. However, the application of the regulation was given a transition period, which expired on 31 December 2021. In the meantime, the German Ministry of Finance has issued further letters (14 October 2020 and 27 September 2021) which clarify the application of the above-mentioned VAT exemption. With the new German Federal Ministry of Finance letter, the German VAT Decree (Section 4.3.2 Paragraphs 3 and 4 of the German VAT Decree) has been adjusted with effect as of 1 January 2022.

According to the implementation of the CJEU case law, the VAT exemption is only possible for the transport service of the main carrier, but not of the sub-carrier. The German Federal Ministry of Finance defines the main carrier as the entrepreneur who carries out the transport services for the supplier or recipient of the goods. Subcontractors are transport service providers who provide services to an entrepreneur who is not a supplier or recipient in this sense.