Germany: Consignment warehouses: VAT implications

1. “Normal” deliveries within the European Union 

One goal of the European Union is free trade. As VAT could be a barrier, the delivery of goods from one EU company to a company in another EU country is exempted from VAT.

To receive an exemption from VAT some regulatory requirements have to be met. Besides other information like the name and address of the customer, the deliverer has to provide a valid VAT ID number of the customer. 

Furthermore one of the basic rules to receive a VAT free Intra-Community delivery is, that there is a Intra-Community acquisition, that is subject to VAT in the destination country (although such an IntraCommunity acquisition does not lead to VAT payments in the country of destination, as the VAT levied by the Intra-Community acquisition can be claimed back in the same moment as Input VAT). 

2. EU deliveries to customers within the EU using a consignment warehouse 

A consignment warehouse is stock, which is legally owned by the supplier, although it is in the possession of the customer. This means the supplier delivers some of his inventories in the customer´s warehouse and allows his customer to consume directly from this warehouse stock. As long as the inventory is not taken out of the consignment warehouse it is still owned by the supplier. The benefit to the customer is that the raw materials, consumables and supplies required for the purpose of manufacturing are right there, when needed. There is no time lag caused by long supply routes. 

2.1. German regulations for consignment warehouses 

The German Automotive supplier Heinzelmann sells products to the Spanish Automotive company La cerveza grande using a consignment warehouse.

Implications 

- The delivery of products from Germany to the consignment warehouse in Spain leads to a VATfree Intra-Community movement. 

- The German company has an Intra-Community acquisition in Spain because of the IntraCommunity movement from one EU country to another.

- The German company has to register in Spain for VAT purposes. Goods removals from the warehouse lead to an Intra-Spain delivery and are subject to Spanish VAT. 

2.2. Simplification rules of other EU countries 

To avoid the registration by just having a consignment stock in another country, some EU countries have some simplification rules. These rules treat the goods removal from the warehouse as a VAT free Intra-Community delivery. The previous Intra-Community movement is simply ignored. 

Example 3 

Same as in example 2 but now the customer is a company in Belgium. Belgium uses simplification rules. 

Implications 

- The Belgium Company (and not the German anymore) has an Intra-Community acquisition in Belgium on the date of the removal of goods from the warehouse. 

- As the German judgement is different, the delivery is not seen as an Intra-Community delivery to the Belgium Company. Furthermore the regulatory requirements of the German VAT Implementing Regulation cannot be met; with the effect that German VAT might be caused. 

As seen in the previous example, the simplification of some EU countries does not really lead to a simplification as long as the rules within the EU are not coordinated. The German tax administration is aware of the negative implications the different treatment of deliveries to consignment warehouses could have and therefore in each individual case, it permits not to declare the Intra-Community movement and no German VAT will be levied. 

2.3. New legislation of the Financial Court 

Now a new legislation of the Financial Court Niedersachsen (FG 18.6.15, 5 K 335/14), might change the general German treatment of deliveries to consignment warehouses in other EU countries. 

To understand this legislation it is important to make a distinction between different types of consignment warehouses: 

- General Consignment Warehouse: Several customers are allowed to take inventories from the consignment stock. 

- Call-off-Stock: in this case, just one customer has the exclusive right to take inventories from the consignment stock. 

The Financial Court stated, that in case of a Call-offStock the beneficiary is already clear at the moment the goods are delivered to the consignment stock. Therefore the deliverer has an Intra-Community delivery directly to the customer at the moment the goods are delivered to the foreign Consignment stock and not the moment at which the customer removes the goods from the consignment stock. 

The reaction of the German tax administration should be observed. In case the German tax administration wants to levy VAT on a delivery made to a consignment warehouse in another EU country, the new legislation is definitely helpful.

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