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In the course of its activities as a used car dealer, B carried out transactions which were subject to differential taxation pursuant to Paragraph 25 of the Law on VAT.

(Law on Vat=UStG)


On the basis of the fees he received, he calculated a turnover of 27,358 euros for 2009 and 25,115 euros for 2010.

In his VAT returns of 10 February 2010 (for 2009) and 23 March 2011 (for 2010), B assumed that he could rely on his status as a "small entrepreneur" within the meaning of Paragraph 19 of the Law on VAT, since his turnover for 2009 was 17,328 euros and for 2010 17,470 euros. B did not calculate these sales on the basis of his fees received, but on the basis of his profit margin in accordance with Paragraph 25a(3) of the Law on VAT.


The tax office initially approved the B for 2009. Nevertheless, in 2012 it refused to submit a VAT return for the years 2009 and 2010 because, as a result of the new application of the VAT Application Decree of 1 October 2010, VAT is not calculated on the basis of the gross margin but on the basis of the fees received.

For B, this would mean paying VAT, which is why the subject of the dispute even reached as far as the European Court of Justice (ECj).

The ECJ therefore had to clarify whether the new VAT application decree had been interpreted in conformity with Article 288(1) Number. 1 of the VAT Directive. Accordingly, it is to be determined whether in this case the turnover tax is to be determined in favour of B according to the trade margin, or whether the collected fees are to be determined to his disadvantage.


First, as regards the literal interpretation of Article 288(1) Number. 1 of the VAT Directive, it must be stated that, according to the wording of that provision, the turnover of the taxable person is composed of the total amount, net of VAT, of taxed supplies of goods and services, the word "taxed", however, not referring to the word "amount", but to "supplies" or "services".


Therefore, a literal interpretation of Article 288(1) Number. 1 of the VAT Directive implies that the total amount of supplies carried out by taxable resellers and not their margin constitutes the turnover to be taken into account for the purposes of applying the special scheme for small businesses.


That interpretation is confirmed by the system, history and objective of the VAT Directive. These are not further explained here.

In any event, with regard to the objective of the special scheme for small businesses, the Court has held that, by Article 288(1) Number. 1 of the VAT Directive, the Union legislature intended to reduce the accounting requirements imposed by the normal VAT system (judgment of 6 March 1999 in the case of the Court of First Instance). (Judgment of 6 October 2005, MyTravel, C 291/03, EU:C:2005:591, recital 39),


whereby these administrative simplifications are intended in particular to promote the creation and operation of small enterprises and strengthen their competitiveness (Judgments of 26 October 2010, Schmelz, C 97/09, EU:C:2010:632, recital 63, and of 2 May 2019, Jarmuškienė, C 265/18, EU:C:2019:348, recital 37).


In this respect, the German Government agrees that the aim of the special scheme for small enterprises is not to strengthen the competitiveness of large companies active as resellers of second-hand goods. If the fees received in excess of the mark-up were not taken into account in determining turnover for the purposes of applying this special scheme, companies with a high turnover and a low mark-up would be able to benefit from the special scheme and thus gain an unjustified competitive advantage.

In the light of the foregoing, the ECJ replies to the question referred that Article 288(1) Number. 1 of the VAT Directive must be interpreted as meaning that, in determining turnover tax for small businesses, the amounts collected are to be taxed and not the gross margin.

Finally, it follows from the judgment that the tax office was proved right and that B must pay turnover tax.

European Court of Justice: Judgment of 19 December 2018, C‑552/17




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