New Federal Ministry of Finance Circular regarding supply chains

The German Federal Ministry of Finance (BMF) has now issued a statement about supply chains within the meaning of Art. 36a of the Principal VAT directive and its implementation in the German VAT Act after considering the issue for several years. Rules regarding the allocation of the transport in a supply chain where an intermediary organises it were introduced in 2020. The BMF's statement finally brings some legal certainty in this respect.

In general, the allocation of transport in a supply chain is determined in view of the person who actually transports the goods. If the transport is carried out by the first supplier, the transport is deemed to be allocated to the first supply. If the transport is carried out by the final buyer in the chain, the transport is allocated to the last supply. However, if the delivery is made by a person in the middle of the supply chain, that person can choose, provided that they act as an intermediary, that is a person who is both a buyer and a seller.

The BMF circular clarifies that, for the allocation of the transport in a chain transaction – where the transport is carried out by a third party – 

• placing the order with a freight forwarder in the case of shipment is decisive, and that
• a different allocation is only accepted if the business proves that the transport was carried out for the account of another business and that the latter bore the risk of accidental loss of the goods during the transport.

The intermediary can exercise the right to choose to which sale the transport is linked by using their specific VAT identification number in the relevant country. The BMF circular clarifies that the restrictive German interpretation of the term "using their VAT specific number” does not change. As before, a positive action of the intermediary – at the latest at the time of delivery – is required.

Key takeaway

The BMF circular does not bring new rules and there are no changes to the German legal position, only further clarifications are provided.

In contrast with some other European Union Member States, Germany lacks clear guidance with regards to supply chains. This is why legal advice is always recommended.

Reference: German Federal Ministry of Finance, Circular of 25 April 2023 (III C 2 – S 7116-a/19/10001 :003)