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Increasing number of tax audits in online trading and their focus
| The increasing economic importance of online trading is reflected in the increasing number of tax audits. In addition, due to cross-border transactions, risk signals are often triggered in the tax authorities' assessment areas and / or often with strong growth, which can regularly lead to special VAT audits or reviews. |
1. Focal points of current and future exams
In line with the economic importance of online trading, this segment is increasingly becoming the focus of special tax audits. Two aspects represent the current and very likely future focal points.
Since online trading is now largely cross-border thanks to modern logistics structures, traders and their tax advisors are increasingly having to deal with VAT issues, which a few years ago mostly only appeared in the tax departments of large trading groups.
In addition, a large part of the added value in online trading occurs via highly automated processes. This applies in particular to those processes that are relevant for tax determination.
The times in which an auditor inspected the company at the beginning of his audit and found a large number of physical folders with incoming and outgoing documents are largely over in online trading: logistics structures are often outsourced and transactions are mapped and processed using a large number of upstream systems documented.
The GoBD and the seamless documentation defined in it for all processes in the company that are relevant for tax determination (procedural documentation) are therefore of increased importance.
2. Modern online commerce and sales tax
Online trading now takes place mainly on electronic marketplaces, such as B. Amazon, eBay or Zalando instead. The platforms often only act as intermediaries and make their wide reach available to dealers.
For some years now, the so-called marketplace fulfillment has also been added.
Amazon in particular - but also other platforms - offer services in the field of logistics in addition to the pure brokerage service: from warehousing, to shipping to the customer, to returns management. This so-called marketplace fulfillment means that the entrepreneur no longer has complete sovereignty over his transactions and can only initiate important processes in the context of tax compliance afterwards.
2.1 Country of destination principle and § 14c Paragraph 1 UStG
Cross-border deliveries in the EU are subject to the principle of taxation in the destination country - B2C and B2B.
Online trading is still largely characterized by deliveries to end consumers. In these cases, cross-border deliveries within the EU are taxable in the destination country at the latest when the delivery threshold of the destination country is exceeded. Only three Member States and Great Britain have not yet made use of the option in the VAT Directive to reduce the value of the delivery threshold from the standard EUR 100,000 to EUR 35,000 (or the equivalent in national currency).
Since ERP systems and invoice tools often do not have sufficient functions to monitor delivery thresholds on a daily basis, this risk is increasingly being taken up in the context of company and sales tax special audits, as the following excerpt from a report on the special sales tax audit shows.
In this case, the auditor does not have to fear a lower result, since invoices with German sales tax have been automatically issued on a regular basis, so that the sales tax is determined in accordance with Section 14c (1) UStG.
The reasoning which z. B. in the context of the final discussion so far in many cases that § 14c (1) UStG serves to avoid the risk of tax revenue and in the cases mentioned the customers (end consumers) do not have the opportunity to claim input tax, should increasingly ins Empty run. The BFH ruled on December 13th, 2018 (V R 4/18) that there is a risk to tax revenue even when invoices are issued to non-entrepreneurs.
The State Office for Taxes in Bavaria put this judgment or Section 14c (1) UStG in the context of overlooked delivery thresholds in an internal decree of 7 June 2019, so that at least business and sales tax special auditors in Bavaria should increasingly take up these cases.
2.2 Cross-border logistics structures and shipment events
In particular, the large marketplaces, which now cover up to 70% of all transactions in online retail, encourage retailers to use their own fulfillment structures - especially Amazon.
This regularly leads to taxable transactions, so-called intra-community shipments i. S. d. § 3 Abs. 1a UStG i. V. m. § 6a Abs. 2 UStG, which are basically tax-free in the country of origin according to § 4 Abs. 1 b) UStG.
These and similar issues are regularly controversial in the context of company and sales tax special audits, as the tax authorities always focus on the completeness of the accounting records and supporting documents (§§ 17a ff. UStDV).
In the current case law and most recently with the judgment of October 20, 2016, the European Court of Justice (C-24/15) decided that accounting records and supporting documents (e.g. valid VAT ID in the country of destination) were merely formal criteria and not substantive legal criteria. This reasoning should therefore continue to apply to all examination periods up to 12/2019. For periods thereafter, the risk increases significantly.
2.3 Effects of the quick fixes on B2C and B2B online trading
Since January 1, 2020, the so-called quick fixes have been implemented in national sales tax law in most member states - including in Germany.
In online trading, based on practical experience, the new substantive legal meaning of the VAT ID no. - see § 6a Abs. 1 Nr. 4 UStG - by far the greatest risk and should certainly form a focus for examination periods from 1/2020 in online trading.
2.4 Taxable shipments under the Amazon programs
Online retailers who have been making intra-community shipments (Section 6a (2) UStG in conjunction with Section 3 (1a) UStG) since January 1st, 2020 and who do not have a valid VAT ID number at the time of the transaction. in other EU countries, these transactions must be taxed as taxable deliveries in the country of origin - regardless of the fact that there is still a taxable and regularly taxable intra-community acquisition in the country of destination.
If one realizes once again that intra-Community shipments are transactions that are only fictitious for VAT purposes, one recognizes the considerable risk potential. In the worst case, sales tax must be paid for deliveries for which payment has never been received.
2.5 Numerous invalid VAT ID numbers in B2B online trading
Intra-Community deliveries (Section 6a (1) UStG) are also becoming increasingly important in online trading. Amazon's B2B marketplace - Amazon Business - opened at the end of 2017 and is experiencing high growth rates.
In order to increase acceptance for this young marketplace, retailers must in fact leave the VAT assessment of their transactions to Amazon. However, this so-called sales tax calculation service has had a crucial weakness since 1.1.20 at the latest: The validity of the VAT ID no. is not checked in the context of intra-community deliveries.
According to our evaluations, in April 2020 of approx. 300,000 VAT ID numbers stored on Amazon Business, approx. 8% were invalid, so that these transactions are also subject to sales tax and, in my opinion, like deliveries to end consumers i. S. d. § 3c UStG would have to be dealt with.
So far it has been made clear how the country of destination principle and the quick fixes can develop a considerable risk potential in the context of tax audits. In the following, it should be pointed out again that numerous upstream systems used in online trading cannot yet automatically map the entire range of the relevant sales tax law.
2.6 Mass proceedings and automated sales tax logic
In practice, it has been shown that many of the previous systems used for invoicing - ERP systems and invoicing tools - still do not have sufficient sales tax logic. In almost all systems, the user has to store a complex if-then matrix himself, which is therefore prone to errors and at the latest when national options are available when interpreting the VAT Directive, it quickly reaches its limits.
According to our evaluations, which are based on a double-digit billion number of transactions in online retail, around 20% of all invoices in cross-border online retail are unlikely to be legally compliant.
There should still be a large number of companies that, despite exceeding delivery thresholds and / or using cross-border logistics structures, subject all transactions to German sales tax.
Business and sales tax special audits, which are based directly on the raw data of the marketplaces using the IDEA test software, can quickly uncover such structural defects.
The auditor does not have to fear a lower result, since in these cases it should often be possible to set the sales tax in accordance with § 14c (1) UStG.
3. (Further) effects of tax obligations in other EU countries
This section aims to explain two aspects with which many consultants and / or companies have probably hardly come into contact with, but which are likely to become increasingly important.
3.1 Tax audits in other EU countries
As in Germany, the tax authorities in other EU countries also have the option of external audits to ensure that taxes are set legally and uniformly - even for non-resident companies.
We are currently seeing so-called compliance checks in Germany-based online retailers in Great Britain and increasingly also in France, Poland, Spain and Austria, as part of which the local tax authorities check the reported, domestically taxable and non-taxable transactions.
The deadlines are often challenging here. In Great Britain, for example, as part of a so-called compliance check, relevant documents - e. B. transaction data, billing of the payment providers - are made available via a temporarily activated cloud access of the British tax authorities (HMRC).
If the entrepreneur does not react in these cases and lets the deadline pass, HMRC will notify the marketplaces such as B. Amazon or eBay. In the worst case, this can lead to the company being blocked by marketplaces throughout the EU and losing its livelihood.
This mechanism is due to the liability of electronic marketplaces for unpaid sales tax. Corresponding regulations have been in effect in Great Britain, for example, since 2016, in Germany since 2019 (Section 25e UStG) and in France since 2020.
For many traders, marketplaces such as B. Amazon and eBay are the most important sales channels, so that even a temporary suspension can become an existential risk.
3.2 Domestic tax evasion in the case of abbreviation in another EU country - Section 370 (6) AO
A norm that, according to our experience, has not yet been used very often in tax offices is Section 370 (6) sentence 2 AO.
Accordingly, there can also be a tax reduction in Germany if the act relates to sales taxes that are administered by another Member State. This norm is the result of the constantly high level of VAT fraud with the help of cross-border transactions - so-called carousel deals.
Ultimately, this would mean that a German tax auditor who z. B. unrecognized by the company reveals delivery thresholds that have been exceeded;
4. GoBD - structural audits and the challenges of a heterogeneous pre-system landscape
The last section deals with the procedural risks associated with tax audits in online trading.
Business and sales tax special audits are starting more and more frequently with the request for so-called procedural documentation i. S. d. GoBD (BMF of November 28, 2019, IV A 4 - S 0316/19/10003: 001).
The process documentation is so fundamental from the point of view of an auditor in online trading, because in this segment almost all processes with an impact on tax determination are often automated and the auditor otherwise finds it difficult to gain a comprehensive insight in a reasonable time, as prescribed by the GoBD, can provide.
Due to a lack of procedural documentation, an auditor would not immediately be able to question the traceability, audit security and thus the correctness of the bookkeeping and to expand the previous assessment basis by adding an additional estimate. In addition, the GoBD itself does not represent a directly applicable law and tests often end (only) with the requirement in the test report to keep procedural documentation available in the future. However, one should bear in mind that the majority of the previous systems (ERP systems, invoice tools, ...) in online trading are not called SAP. These systems often allow transaction data to be changed or even overwritten afterwards.
This can lead to the lack of documentation being used as an opportunity to question the correctness of the internal processes and thus the bookkeeping.
An additional challenge is that the systems mentioned often do not provide their users with any application documentation. In the context of this documentation, a knowledgeable third party - e. B. an auditor - explain how the data flow through the respective system and how the data is modified at which points within these systems.
This application documentation - for every system in use - must be seamlessly integrated by the company into the process documentation, which ultimately forms the framework.
In conclusion, it should be noted that company and sales tax special audits have long ceased to be mere document audits.
There are increasing structural questions in the room. The entrepreneur or his consultant must be able to defend the so-called internal control system for taxes - the unity of all processes for tax determination and their monitoring.
This can only be achieved with consistent documentation of these processes, which must then also be lived as set out in writing. This is - and here's the good news - relatively easy due to the high level of automation in online trading.
To the author
- Dr. Roger Gothmann holds a degree in finance and economics. For many years he worked for the state and federal tax authorities in the field of national and international sales tax. Most recently, he headed the tax department of an international research institute in Hamburg. Since 2016 he has been one of three co-founders and managing directors of Taxdoo GmbH, which operates a cloud-based platform for automated and digital VAT compliance and financial accounting in online trading.
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