VAT liability for cross-border transportation services: Important changes for forwarding agents

Cross-border forwarding services (transportation of goods) in connection with third (non-EU) countries are under certain circumstances VAT-free (§4 Nr. 3a German VAT Code). Based on the decision of the European Court of Justice dated 29 June 2017, the German Federal Ministry of Finance has issued a letter on 6 February 2020 (“Letter”) with the following important changes:

• A forwarding agent (“Main Agent”), who has taken over transportation of goods, causes a transportation service even if he does not carry out the transportation by himself but by another forwarding agent (“Sub Agent”). In this case, the Sub Agent also carries out transportation services to the Main Agent. Transportation services of Main Agents and Sub Agents whose services relate to domestic and foreign countries are cross-border.
• Before the Letter was issued, cross-border transportation services in connection with third (non-EU) countries were principally VAT-free. Now, transportation services of the Main Agent are principally VAT-free but not for the Sub Agent since the Sub Agent does not carry out transportation services to sender or recipient of the goods but to the Main Agent.
• The new principles are applicable to all open cases. For transportation services revenues carried out before 1 July 2020, the tax authority will not object if the previous principle was applied.

Affected Agents should be prepared on this limitation:

• Sub Agents should check whether transportation services to Main Agents are still VAT-free
• Main Agents should consider that their expenses will increase since VAT invoiced by a Sub Agent cannot be claimed if corresponding transportation services (billed by Main Agent to customer) are VAT-free.

Contact us if you have questions.

Source: Letter of German Federal Ministry of Finance dated 6 February 2020

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