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Consignment stocks: Direct delivery only with binding purchase agreement

23 May 2017

ITR Correspondent

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The German Federal Fiscal Court has published a decision regarding the VAT treatment of supplies via consignment stocks (VR 1/16). Ronny Langer, partner at Küffner Maunz Langer Zugmaier, explains what this case could mean for other cross-border transactions.

The court denied a direct delivery resulting in an intra-community supply because there was no binding purchase contract in place at the beginning of the transport of the stock.

Case background

A Dutch BV delivered screens to a German customer. The screens were brought to a call-off stock on the customer’s site. The BV remained the owner of the consignment stock until such time as the BV’s customer transmitted its weekly list of the consignment stock sold in the previous week. The purchase price charged by the BV was only set on the day on which the customer resold the consignment stock. The BV was obliged to leave the consignment stock in the warehouse for at least three weeks. After this period, the customer was entitled to return the whole stock or part thereof to the BV.

Court’s rational

Since there are no special regulations for consignment stocks in Germany, the Federal Fiscal Court decided the case using the general VAT principles. Therefore, the court considered whether section 3, paragraph 6 of the German VAT Act could be applied and if the place of delivery was consequently in the Netherlands, from where the goods were transported to the warehouse. Since section 3, paragraph 6 of the German VAT Act requires shipment to the customer, it must be clear who the customer is at the beginning of the shipment. The German Federal Fiscal Court decided that, at the beginning of the shipment, a binding purchase contract is therefore crucial.   

However, according to the agreement between the parties in the case, the customer was not obliged to buy the goods brought to the warehouse. Moreover, the customer was not obliged to make a payment until the goods were taken out of stock. According to the German Federal Fiscal Court, a binding purchase contract was not concluded until after the storage period (or, to be more precise, when the goods were removed from the warehouse). The place of delivery was, therefore, in Germany and not in the Netherlands, as it would have been in the case of a direct delivery.

Apparently, the German Federal Fiscal Court’s decision was influenced by the fact that the goods were in the books of the supplier and not the customer until their removal from the stock.

This is surprising because entering the goods in the balance sheet is only a result of the person being the beneficial owner. It is not an indication of the VAT treatment, even if the right to dispose of the goods and the economic ownership have certain similarities.

All in all, the questions of how binding a purchase contract needs to be and which conditions need to be fulfilled remain open. German civil law cannot be relevant because cross-border transactions are to be assessed, which means that eventually, the civil law of the ship-from country also needs to be considered. This might differ from German civil law.

Ronny Langer KMLZ Ronny Langer
Partner and certified tax consultant
Küffner Maunz Langer Zugmaier

T +44 89 217501250

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