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The special schemes for small enterprises and farmers in EU VAT on the example of Germany

Beugel, Annette LU (2016) HARN60 20161
Department of Business Law
Abstract
In the European Union there are special schemes in Value Added Tax that Member States may adopt. Those rules are set out in the VAT Directive. Two of those special schemes are the special scheme for small enterprises and the common flat-rate scheme for farmers. Along to the provisions of the VAT Directive there is also some case law from the CJEU that clarifies the application of the schemes.

Germany is a EU Member State and adopted those two schemes - or more specifically from the three options for the small enterprises scheme, Germany adopted the exemption scheme. Those rules are set out in the German turnover tax act - the Umsatzsteuergesetz. However, when a Member State adopts a provision from the VAT Directive it has to be in line... (More)
In the European Union there are special schemes in Value Added Tax that Member States may adopt. Those rules are set out in the VAT Directive. Two of those special schemes are the special scheme for small enterprises and the common flat-rate scheme for farmers. Along to the provisions of the VAT Directive there is also some case law from the CJEU that clarifies the application of the schemes.

Germany is a EU Member State and adopted those two schemes - or more specifically from the three options for the small enterprises scheme, Germany adopted the exemption scheme. Those rules are set out in the German turnover tax act - the Umsatzsteuergesetz. However, when a Member State adopts a provision from the VAT Directive it has to be in line with the Directive.

The first purpose of this thesis is to assess whether the German tax law regarding the special schemes for turnover tax of small enterprises and farmers in §§ 19 and 24 UStG are compatible with EU law.
When comparing firstly the German provisions on the exemption scheme for small enterprises and the provisions of the Directive there is no deviation from EU law. One may however discuss if the German threshold of 17.500 Euros is set too low.
On the other hand regarding the common flat-rate scheme for farmers some deviations do exist in the German turnover tax act. It is arguable whether the exclusion in § 24 UStG of commercial enterprises by virtue of legal form is contrary to the principle of neutrality. The German legislation now provides for the option to be either taxed according to the § 24 UStG (and therefore be excluded from the special scheme) or according to a judgement of the BFH (and therefore be able to be taxed according to the common flat-rate scheme). It is also discussed whether the flat-rate compensation percentage is set too high. But besides that, the provisions of the UStG on those two special schemes are in line with the VAT Directive.

Secondly, the thesis examines whether those special schemes are beneficial in general.
When a Member State adopts the exemption scheme for small enterprises or the common flat-rate scheme for farmers the affected taxable persons have to face several considerations. In both schemes the taxable person may also opt to be subject to the normal VAT arrangements - or in some cases a taxable person may also decide according to which of those two special schemes he could be taxed. The different circumstances of the taxable person will affect the decision under which scheme the farmer or small enterprise wants to be taxed. But also the administration relief advantage may have an influence on that decision.
On the other hand also the Member State has - besides the administration relief - to face several risks. Those are also circumventions or abusive bypasses either of the schemes or the normal VAT arrangements, due to the fact that there is no deduction of input VAT when being subject to either one of those schemes. (Less)
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@misc{8880158,
  abstract     = {In the European Union there are special schemes in Value Added Tax that Member States may adopt. Those rules are set out in the VAT Directive. Two of those special schemes are the special scheme for small enterprises and the common flat-rate scheme for farmers. Along to the provisions of the VAT Directive there is also some case law from the CJEU that clarifies the application of the schemes.

Germany is a EU Member State and adopted those two schemes - or more specifically from the three options for the small enterprises scheme, Germany adopted the exemption scheme. Those rules are set out in the German turnover tax act - the Umsatzsteuergesetz. However, when a Member State adopts a provision from the VAT Directive it has to be in line with the Directive. 

The first purpose of this thesis is to assess whether the German tax law regarding the special schemes for turnover tax of small enterprises and farmers in §§ 19 and 24 UStG are compatible with EU law. 
When comparing firstly the German provisions on the exemption scheme for small enterprises and the provisions of the Directive there is no deviation from EU law. One may however discuss if the German threshold of 17.500 Euros is set too low. 
On the other hand regarding the common flat-rate scheme for farmers some deviations do exist in the German turnover tax act. It is arguable whether the exclusion in § 24 UStG of commercial enterprises by virtue of legal form is contrary to the principle of neutrality. The German legislation now provides for the option to be either taxed according to the § 24 UStG (and therefore be excluded from the special scheme) or according to a judgement of the BFH (and therefore be able to be taxed according to the common flat-rate scheme). It is also discussed whether the flat-rate compensation percentage is set too high. But besides that, the provisions of the UStG on those two special schemes are in line with the VAT Directive.

Secondly, the thesis examines whether those special schemes are beneficial in general.
When a Member State adopts the exemption scheme for small enterprises or the common flat-rate scheme for farmers the affected taxable persons have to face several considerations. In both schemes the taxable person may also opt to be subject to the normal VAT arrangements - or in some cases a taxable person may also decide according to which of those two special schemes he could be taxed. The different circumstances of the taxable person will affect the decision under which scheme the farmer or small enterprise wants to be taxed. But also the administration relief advantage may have an influence on that decision. 
On the other hand also the Member State has - besides the administration relief - to face several risks. Those are also circumventions or abusive bypasses either of the schemes or the normal VAT arrangements, due to the fact that there is no deduction of input VAT when being subject to either one of those schemes.},
  author       = {Beugel, Annette},
  keyword      = {VAT,Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax,special schemes,exemption for small enterprises,flat-rate scheme for farmers,small enterprise,farmer,turnover tax,Umsatzsteuergesetz,Germany,Kleinunternehmer,land- und forstwirtschaftlicher Betrieb,implementation},
  language     = {eng},
  note         = {Student Paper},
  title        = {The special schemes for small enterprises and farmers in EU VAT on the example of Germany},
  year         = {2016},
}