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New definition of the concept of “supply and installation” (Werklieferung)

The distinction between “supply and installation” (Werklieferung) and “installation service” (Werkleistung) frequently leads to discussions particularly in the area of VAT. The fiscal authority has now responded to the case law of the Federal Fiscal Court and in the Federal Ministry of Finance’s (Bundesministerium der Finanzen, BMF) circular, from 1.10.2020, it has provided a revised definition of the term “supply and installation” (Werklieferung) in the VAT application decree.

Previously, the fiscal authority held the view that “supply and installation” should be assumed if the contractor had used materials that it had procured itself for the installation and that were not just additions or other accessories. A further condition for “supply and installation” was that, in connection with the installation, the contractor also had to treat or finish a third-party object. Contrary to the previous opinion, if solely own objects are treated or finished then this would no longer constitute “supply and installation”.

The differentiation between “supply and installation” and “installation service” is done mainly for the purpose of the classification as a supply or a service; this is, in turn, is crucial for determining the place of supply or place of performance. In the case of “supply and installation”, the place and time of the supply are determined analogously to the provisions for supplies under Section 3(5a),(6) to (8) of the VAT Act (Umsatzsteuergesetz, UStG). Therefore, the place of supply will normally be where the transport or dispatch to the recipient begins. In the case of chain transactions, determining the place of supply can differ from that. An “installation service” has to be classified as a service for which the place of performance will be determined in accordance with Section 3a UStG. The starting point here is the principle that the service will be provided where the contractor operates its business.

This adjustment will be taken into account for all open cases, although the BMF circular includes a no objection rule – in all cases where statutory value added tax arose prior 1.1.2021, businesses will be able to treat the sales, including for the purposes of input tax deduction and cases under Section 13b UStG, in accordance with the old regulations.

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