In 2013, the Federal Fiscal Court had already determined that a work delivery presupposes that the entrepreneur processes a third-party object and not an own one. The Federal Ministry of Finance has now shared this view. What this means is explained below.
Legal situation according to the Federal Ministry of Finance
If the entrepreneur processes a third-party object and uses at least one material procured by himself, which is not an ingredient or by-product but the main product, it is considered a work delivery. When own objects are processed it is qualified as assembly delivery.
What is the impact of the distinction?
Both work deliveries and assembly deliveries are rendered where the assembly or installation takes place. Therefore, there is no difference in this respect. However, the distinction may be of importance for the determination of the tax debtor. This is because in Germany the reverse charge procedure applies to work supplies rendered by entrepreneurs located abroad, i.e. the customer becomes the tax debtor. According to the wording of the law, this does not apply to assembly deliveries. It is not the customer who is liable to pay tax, but the supplying entrepreneur. The latter must register in Germany and account for German VAT and pay it to the local tax authorities.
Does this also apply abroad?
The letter concerns incoming services which are taxable in Germany. Entrepreneurs providing assembly or work supplies in foreign (EU) countries have to check how they are taxed there.
What has to be done?
The Federal Ministry of Finance grants a transitional arrangement until 31.12.2020, i.e. up to then no objections will be raised if assembly deliveries are still treated as work deliveries, i.e. the customer withholds and pays the sales tax. As of 2021, contractors and their customers will have to differ precisely between work and assembly deliveries in order to correctly declare the VAT. This is supposed not to be easy all the time.