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Description of items supplied that is shown on invoices – The Federal Fiscal Court rejects excessive requirements

We already reported on a case that was pending at the Federal Fiscal Court (Bundesfinanzhof, BFH) where the point at issue was how precise does the description of items supplied have to be in an invoice text in order to ensure that the input tax can be deducted. The BFH, in two rulings from 10.7.2019 (case references: XI R 28/18 and XI R 2/18) has now made a business-friendly decision and eased the situation somewhat in this respect.

Issue – Usual commercial descriptions

The case that the court had to rule on – XI R 28/18 – related to the question of whether or not it was permissible to deduct the input tax shown on invoices where merely the product category appeared as the description of items supplied, such as, e.g., T-shirts, sweaters, etc. The Hessian tax court, as the lower court, (ruling from 19.6.2018, case reference 1 K 1828/17) had refused input tax deduction on the basis of an invoice that had accordingly been issued because the terms that had been used were not the usual commercial descriptions. The tax court was of the opinion that it had to be possible to identify the items individually.

BFH ruling with reference to commercial practice

The BFH confirmed that the information shown on invoices, as defined in Section 14 of the VAT Act (Umsatzsteuergesetz, UStG), has to be such that it is possible to identify what goods or services have been invoiced. However, there is no requirement for an exhaustive description of the specific goods supplied or services performed. The description should make it possible to clearly and easily verify the statement where goods or services that have been invoiced are identified. What is needed to satisfy this condition will be determined by the circumstances in a particular case.

Please note: A point of reference for the issuers of invoices could be the description used by the manufacturer of the goods when they are put on to the market. According to the BFH, the usual description will be the one that is used between business people.

In its argumentation, the BFH explained further that, in view of EU law, the term “usual commercial description” – which was added in brackets and included in Section 14(4) clause 1 no. 5 UStG – should not result in a tightening of the conditions required for an input tax deduction. Anyone who denies that a description is a usual commercial one would, moreover, have to provide documentary evidence of what constitutes a usual commercial description. Therefore, if the local tax office wanted to refuse input tax deduction on the grounds that the description was not the usual commercial one it would, thus, have to provide proof that the description that had been used was indeed not the usual commercial one.

Please note: Given that the BFH has referred the matter back to the lower court for ultimate clarification there is still no definitive legal clarity in this case.

Recommendation: A description that is as clear as possible and a reference to supplementary business records (e.g. delivery notes, orders, or similar) will prevent arguments with the fiscal authority and help to avoid tax risks as far as input tax deduction is concerned. However, if a difference in opinion does occur with respect to the correct description of the items supplied then the taxpayer will be able to invoke commercial practices.

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