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Internet sales – Threshold for classification as a business

Occasional private sales on the internet will usually have no tax consequences. If the internet sales continue to grow, however, there is a risk that the threshold level between what constitutes tax-exempt private sales and taxable commercial selling will be breached.

The Federal Fiscal Court (Bundesfinanzhof, BFH) has set out the criteria for differentiating between private sales and commercial selling in its ruling from 17.6.2020 (case reference: X R 26/18). The ruling was prompted by a Ms F who, from 2009 to 2013, had bought up items from household clearances and had listed them for sale on eBay with a minimum bidding price of € 1. In the course of a tax investigation, it was discovered that with around 260 – 1,057 auctions every year she had generated annual sales of between € 40,000 and € 95,000. Ms F took legal action against the income tax and trade tax assessment notices that were issued after she was classified as a commercial seller; in doing so, she pointed out that she was not in the business of selling because she had neither a business plan nor previous experience in retailing and only occasionally purchased items from household clearances. Her priorities were the thrill of the auction and enjoying the haggling.

However, the BFH did not share Ms F’s view and ruled that classifying her activities as commercial selling was  appropriate. The lower court had taken into consideration not just the period of time and the volume of sales as well as the amount of revenues, but had also based its argument on the methodical purchasing and selling. The woman had systematically bought up her goods at household clearances and had then sold them on eBay, therefore, it had to be to presumed that there had been a structured approach.

Moreover “enjoying the haggling” is not a suitable criterion for distinguishing private sales activities from commercial selling. Furthermore, the BFH expressly pointed out that for a presumption of commercial selling the person doing the selling does not have to perfectly match the ideal profile for a trade professional. 

Recommendation: Therefore, online sellers who meet the criteria for being classified as a business should declare their sales and profits to the tax authority early on. Otherwise, commercial sellers will be at risk of having to make considerable additional tax payments and interest payments as well as, potentially, facing legal proceedings in respect of tax evasion.

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