In its ruling of 3 August 2017 (Ref. V R 19/16), the Federal Court of Finance (BFH) decided that the establishment of a structured sales organisation is not exempt from VAT. In principle, this not only applies to structured sales organisations and other distribution companies and pools, but also to insurance intermediaries (agents), insurance brokers and their (broker) advisors. Insurers and/or the main distributor (master distributor) may also be based abroad.
Conditions for tax exemption in the turnover tax
According to the decision of the Federal Court of Finance, both of the following two conditions must be met cumulatively in order to be exempt from VAT:
- “Firstly, the service provider must be in contact with both the insurer and the insured when arranging the insurance contract. This connection may also be indirect if the service provider is a subcontractor of the insurance broker or agent”.
- “Secondly, his activity must cover essential aspects of insurance mediation, such as seeking customers and bringing them together with the insurer. In the case of a subcontractor, the decisive factor is that it is involved in the conclusion of insurance contracts.
Only if the actual implementation and contract design is appropriate can tipsters and sub-brokers also earn their share of the commission or brokerage fee free of VAT.
Value added tax liability for the establishment and maintenance of a sales organisation
The BFH delimits this as follows: “The support, training and supervision of insurance agents, the setting and payment of commissions and the maintenance of contacts with insurance agents, which is typically associated with the establishment and maintenance of a structured sales organisation, is not part of the activities of an insurance agent. Such services are only exempt from tax if the trader can indirectly influence one of the contracting parties by examining each offer of a contract, taking into account the possibility of carrying out such an examination in individual cases. There is no tax exemption for services which have no connection to individual brokerage transactions, but which serve at most to support another entrepreneur providing brokerage services within the framework of the administration of a sales organization.
Value-added tax liability also in the case of care commissions
Typically, this also includes broker advisors and buyers of broker portfolios who do not manage the portfolios themselves or have them managed by their own employees. The Federal Court of Finance clarifies that it is irrelevant whether the remuneration is “wholly or partly commission payments or fixed remuneration”, because “the tax exemption of the mediation cannot result from a remuneration regulation which is dependent on mediation success”.
When the auditor’s at the door?
The tax authorities react draconically when sales tax is evaded. From 50 TEUR upwards, money laundering is usually added – such funds are then considered “tainted” and could be confiscated. If only 5% of the total assets (e.g. in an account) have been created by tampered funds, the entire bank balance becomes an object of money laundering – i.e. collectible with potential forfeiture in favour of the state treasury (Bundestag document 989, page 27; BGH 1 StR 33/15).
Some structured sales organisations – as the example of MEG-AG showed – also overlook the fact that the sales staff are so-called pseudo self-employed. This means that the client of the sales department is liable for the total social security contributions – in case of negligence in the current year as well as the four previous years. If experts are active as managers or consultants, conditional intent is quickly assumed – with a liability of up to 30 years.
Usually control reports are then also made, so that checks are also made on the employees (brokers, broker advisors, agents, etc.). If these affected persons are then essentially and mainly working for one company or corporation only, contributions to the statutory pension insurance scheme are retroactively collected after a status as employee-like self-employed person has been established.
The average “confirmation” of one’s own tax advisor does not protect against an avoidable prohibition error and thus 30 years of liability. However, the insolvency administrator of the person concerned will regularly want to attribute the violation to a failure to provide information on the lack of a Persilschein effect.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.experten.de (published in the ExpertenReport 05/2018, pages 60 – 61)
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Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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