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Reduced VAT for continuous services – An addendum is necessary for agreements without a dynamic clause

If continuous services are separable services and these can be invoiced for shorter time periods then, according to the 2nd Coronavirus Tax-Related Assistance Act, from 1.7.2020 to 31.12.2020 this has to be done on the basis of the reduced VAT rate. That is why urgent action is now needed if a fixed VAT rate has been specified in a framework agreement.

Continuous services are services that extend over a longer period of time, e.g. rentals and maintenance. The transactions will be deemed to have been carried out on the day when the agreed performance period ends. If a dynamic clause is agreed with no separately disclosed VAT then no action is required, for example: “The monthly rent is € 10,000 plus VAT at the statutory rate.” However, frequently there are agreements without a dynamic clause where the VAT has been separately disclosed, for example these state: “The monthly rent is € 10,000 plus € 1,900.”

If in such cases (continuous) invoices have been issued then it would be sufficient to adjust the continuous invoice by stating the modified VAT rates for the respective period – insofar as there is no express written form requirement for an amendment to the agreement. If the agreement is being used as an invoice document and if there is an underlying written form requirement for any adjustments to the agreement then an addendum to the agreement will be necessary. The modified VAT would have to be specified here for the respective time period.

In the Federal Ministry of Finance (Bundesministerium der Finanzen, BMF) draft letter of implementation with respect to the reduction in the VAT rates, from 26.6.2020, it states that where agreements for continuous services are regarded as invoices then for the purpose of adjusting the agreement it is sufficient to provide a supplementary document. However, in the draft letter the BMF does not deal with the question – discussed in practice – if and in what cases this addendum to the agreement has to be signed by both parties to the agreement.

Example of a supplementary agreement

“In addition to the rental agreement from ..., the parties hereby agree that during the period 1.7.2020 to 31.12.2020 the monthly rent payable shall be € 10,000 plus € 1,600 (= 16 % VAT). The total amount of rent will then be € 11,600. The rent set out in the rental agreement in the amount of € 10,000 + € 1,900 = € 11,900 shall not apply during this period of time.”

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