Collection of MWST or VAT in Germany for American client
Thread poster: Matthew Held

Matthew Held  Identity Verified
United States
Local time: 12:18
Member (2016)
German to English
May 17

Hi folks.
An independent translator is domiciled in Germany.
She does a job for an American corporation. This corporation has no offices in Germany. This corporation pays her in euros from a bank account in Germany.

Question: Must the independent translator collect MWST (VAT) or sales tax from her American customer?

What if the American customer is a private person? Must the translator collect VAT or sales tax then?

This is one of those questions to which you can find any answer you want if you look hard enough. Can anyone shed some light? Thank you, Matt Held


 

Thomas T. Frost  Identity Verified
Member (2014)
Danish to English
+ ...
No VAT May 17

Matthew Held wrote:
Question: Must the independent translator collect MWST (VAT) or sales tax from her American customer?

What if the American customer is a private person? Must the translator collect VAT or sales tax then?



No and no.

VAT for such services is due:
- if the client is a consumer or non-VAT-registered entity resident/based in the EU's VAT area,
- if the client is anyone based in the same EU Member State as the supplier or
- or if the client is a VAT-registered entity elsewhere in the EU's VAT area, but the client must pay the VAT in their own Member State.

No VAT is ever due if the client is outside the EU's VAT area.

The bank account has nothing to do with it. It is not the bank account that determines where someone is resident or based. That would be the tail wagging the dog. I presume, though, that the bank account holder is the client and not someone else.


 

Samuel Murray  Identity Verified
Netherlands
Local time: 18:18
Member (2006)
English to Afrikaans
+ ...
In the Netherlands... May 17

Matthew Held wrote:
1. Must the independent translator collect MWST (VAT) or sales tax from her American customer?
2. What if the American customer is a private person? Must the translator collect VAT or sales tax then?


The Netherlands is not Germany, but I'll give you the answers for the Netherlands.

1. No, he must not charge VAT, because it is a business outside the EU.
2. Yes, he must charge VAT, because it is a private person. The Dutch tax authorities deem services to private persons always to have been performed inside the Netherlands, even if the private person is outside the Netherlands.

I was surprised at Thomas' answer concerning #2, but Thomas is from Germany, so likely he knows something about Germany that I don't.

I agree with Thomas about the location of the bank. The location of the translator's bank isn't relevant either.

[Edited at 2018-05-17 07:14 GMT]


 

Michael Wetzel  Identity Verified
Germany
Local time: 18:18
German to English
Strongly agree with Thomas about Germany May 17

The classic for VAT questions regarding Germany can be found at:
https://www.triacom.com/content.archive/content.de.html

I can't cite the section of Germany's VAT law that regulates this point, and I don't know if it is cited in Per and Thea Döhler's summary. However, I do know the reason why German translators do not have to (or, to be more precise, did not have to the last time I looked and still almost certainly do not have to) charge VAT to private clients outside the EU: Services provided by members of the liberal professions ("Freiberufler": doctors, lawyers, architects ... translators ...) are subject to an exception to the general VAT rule explained by Samuel.

I don't know if that is a specifically German exception or a widespread exception or an exception that is part of the original directive and should show up more or less everywhere in the EU (although translators might not be included in the exceptional group everywhere).

It's directly relevant for me because I end up working with one or two private Swiss clients most years. I had a VAT audit several years back and they had no issue with the way I was doing things, although that was several years ago and the main issue was correctly reporting inner-EU services, not non-EU services.


 

Samuel Murray  Identity Verified
Netherlands
Local time: 18:18
Member (2006)
English to Afrikaans
+ ...
@Michael May 17

Michael Wetzel wrote:
I do know the reason why German translators do not have to ... charge VAT to private clients outside the EU: services provided by members of the liberal professions ("Freiberufler": doctors, lawyers, architects ... translators ...) are subject to an exception to the general VAT rule explained by Samuel.


The Netherlands have a similar exception (see here) -- but it only applies to "translators of books" (and it applies worldwide, and for both business and private clients). Business translators (i.e. translators of something other than an entire book that is going to be published with your name mentioned as the translator) do not qualify for this exception in the Netherlands.


 

Michael Wetzel  Identity Verified
Germany
Local time: 18:18
German to English
Thank you, Samuel May 17

That makes a lot of sense. And it seems reasonable that this detail would be treated differently in different countries.

Whether or not a translator is selling the right to use a translation that qualifies as intellectual property or is simply selling a translation (which either doesn't qualify as IP or whose primary purpose isn't its public presentation) is relevant for other questions of German VAT, but not for the one here.
German also has the word "Literaturübersetzer" for the concept you've described (in spite of the somewhat misleading name, it actually means "book translator" in most contexts), but that word and that distinction do not turn up in the VAT law's list of unquestionably liberal professions ("Katalogberufe").


 

Thomas T. Frost  Identity Verified
Member (2014)
Danish to English
+ ...
VAT May 17

It does not make sense that the Netherlands applies different rules, as all EU Member States must apply the same VAT Directive: http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32006L0112&from=EN .


Supply of miscellaneous services

Article 56

1. The place of supply of the following services to customers established outside the Community, or to taxable persons established in the Community but not in the same country as the supplier, shall be the place where the customer has established his business or has a fixed establishment for which the service is supplied, or, in the absence of such a place, the place where he has his permanent address or usually resides:

[…]

(c)

the services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services, as well as data processing and the provision of information;


The place of supply determines where to apply VAT.

This article is obviously open to interpretation, which could explain why some countries are more restrictive.

I found this from the European Fiscal Confederation, but it's from 2000:

http://financedocbox.com/amp/66661053-Tax_Planning/5-4-court-cases-pending-before-the-ecj.html


Origin: Portugal References: Article 9 of the Sixth VAT Directive Subject: Place of taxation of translators' and interpreters' services (Document TAXUD/1873/00 - Working Paper No 302) 61st meeting - 27 June 2000
All delegations agree that translation services are among the services covered by Article 9(2)(e). The great majority of delegations agree that interpretation services are also among the services covered by Article 9(2)(e).


In 2014 my German accountant confirmed the rules I described above and already applied in France. An accountant could be mistaken, of course, but it is also possible that the Netherlands is infringing the VAT Directive by placing the place of supply for translation services in the Netherlands. I'm not sure if there is any relevant case law.


 

Samuel Murray  Identity Verified
Netherlands
Local time: 18:18
Member (2006)
English to Afrikaans
+ ...
@Thomas May 17

Thomas T. Frost wrote:
The place of supply determines where to apply VAT.


Yes, that is what I also understand.

However, the tax authorities themselves determine where the "place of supply" is. In my case, if my client is a private person outside the EU, then the place of supply is the Netherlands. I double-checked, here. If the client is a business outside the EU, then the place of supply is the client's country. Don't ask me what the logic is. And German logic is not Dutch logic, but I hope our discussion has been useful to the OP.

When I first registered my translation services in the Netherlands, I was randomly selected for a tax audit (they call it a "courtesy visit to start-ups") and this is how the tax folks explained it to me as well. But we are all always surprised to discover slight differences in EU law... right? (-:


[Edited at 2018-05-17 11:47 GMT]


 

Thomas T. Frost  Identity Verified
Member (2014)
Danish to English
+ ...
No, the tax authorities don't legislate May 17

Samuel Murray wrote:


However, the tax authorities themselves determine where the "place of supply" is.


Absolutely not. The tax authorities have no legislative authority. They have to apply the law. And Dutch VAT law must conform to EU law, including the EU VAT Directive. This is not a question of Dutch vs. German "logic", but of applying EU law.

Without having further knowledge of your case, I think your local tax authorities are mistaken about this. It makes no sense that a US consumer should pay EU VAT. VAT is a consumption tax on consumers in the EU. But I'm not going to fight your tax battles.icon_smile.gif

There can be parts of the VAT law where the Member State can decide, but the rules for place of supply is unlikely to be one of them.


 

RobinB  Identity Verified
United States
Local time: 11:18
German to English
Thomas is correct May 17

It doesn't matter whether the customer in the third country is a business or a private individual, no VAT is charged on the invoice. This has nothing to do with the tax residence of the supplier (translator).

What *does* happen is that the supplier (translator) subsequently has to add VAT at the relevant rate in their VAT return. At the same time, they can add the same amount of input tax in the same VAT return, meaning that the overall effect is zero.


 

Thomas T. Frost  Identity Verified
Member (2014)
Danish to English
+ ...
Supplier? May 17

RobinB wrote:

What *does* happen is that the supplier (translator) subsequently has to add VAT at the relevant rate in their VAT return. At the same time, they can add the same amount of input tax in the same VAT return, meaning that the overall effect is zero.


You surely mean the client has to charge and deduct VAT (if the client is VAT-registered in the EU, outside the country of the supplier, not the supplier. The translator does not account for VAT on sales if outside the EU or to a VAT-registered business elsewhere in the EU, but they do have to report intra-EU sales to the tax authorities for fraud prevention reasons.


 

Michael Wetzel  Identity Verified
Germany
Local time: 18:18
German to English
Maybe we should stop talking, because the original question has been answered, but ... May 17

I don't see how the Dutch law contradicts the directive: The Germans and the French consider all translators to be providers of "other similar services" and the Dutch don't.

That seems like a perfectly normal and permissible variation in specific details. A look at some of the other professions listed among Germany's "Katalogberufe," or uncontested liberal professions, also makes it clear that 28 separate countries couldn't possibly have precisely synchronized who exactly is and is not exempted under article 56 from the general rule stated in Article 43 ("The place of supply of services shall be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied, or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides.")

Saying that the exception explained in article 56 does not apply to lawyers would contradict the directive. Saying that the exception in article 56 does not apply to translators who are selling the right to use their intellectual property would contradict point 1(a) under Article 56.
The other source you presented makes it seem very reasonable to assume that all translators are always seen as providing "other similar services"; however, the link from the Dutch tax office makes it very clear that this is not the case in the Netherlands.
If you search "liberal professions" in the text of the directive, they show up in an annex on a list of exemptions that "may" be recognized.


 

Matthew Held  Identity Verified
United States
Local time: 12:18
Member (2016)
German to English
TOPIC STARTER
Thank you! May 17

Many thanks to everyone for the rapid responses and credible information. It didn't make sense to me that a translator based in Germany would have to charge an American corporate customers VAT for the simple reason that I (the American corporation) would never use German translators again as long as there are translators of similar skill in America, or any other country!

 

Thomas T. Frost  Identity Verified
Member (2014)
Danish to English
+ ...
Unclear May 17

Michael Wetzel wrote:

I don't see how the Dutch law contradicts the directive: The Germans and the French consider all translators to be providers of "other similar services" and the Dutch don't.

That seems like a perfectly normal and permissible variation in specific details. A look at some of the other professions listed among Germany's "Katalogberufe," or uncontested liberal professions, also makes it clear that 28 separate countries couldn't possibly have precisely synchronized who exactly is and is not exempted under article 56 from the general rule stated in Article 43 ("The place of supply of services shall be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied, or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides.")

Saying that the exception explained in article 56 does not apply to lawyers would contradict the directive. Saying that the exception in article 56 does not apply to translators who are selling the right to use their intellectual property would contradict point 1(a) under Article 56.
The other source you presented makes it seem very reasonable to assume that all translators are always seen as providing "other similar services"; however, the link from the Dutch tax office makes it very clear that this is not the case in the Netherlands.
If you search "liberal professions" in the text of the directive, they show up in an annex on a list of exemptions that "may" be recognized.


It is unclear and open to interpretation, and as such, a common interpretation across the EU would depend on a judgement from the European Court of Justice, which would overrule any national tax office practice.

I don't know anything about Dutch law, and we need to bear in mind that just because a tax office writes something at a website, it doesn't have to be true, as tax offices sometimes don't conform to the law. It would have to be analysed if such advice conforms to Dutch law, and then if Dutch law conforms to the VAT Directive. I shall happily leave that to someone else.

The list of liberal professions you refer to is here:
"LIST OF TRANSACTIONS COVERED BY THE DEROGATIONS REFERRED TO IN ARTICLES 370 AND 371 AND ARTICLES 375 TO 390"
This is about transitional provisions and exemptions and has nothing to do with the question of place of supply. Translation services are not "exempt". The question is about place of supply.

A translator in the Netherlands could avoid Dutch VAT by selling to non-EU consumes through a partner in another EU Member State that does not require VAT to be charged to non-EU residents.

My hunch is that the position of the Netherlands would not stand up in the European Court of Justice.


 

Samuel Murray  Identity Verified
Netherlands
Local time: 18:18
Member (2006)
English to Afrikaans
+ ...
@RobinB May 17

RobinB wrote:
What *does* happen is that the supplier (translator) subsequently has to add VAT at the relevant rate in their VAT return. ...

I'm not sure how it works in other countries, but in the Netherlands, you can't send one version of an invoice to a client (e.g. without VAT) and then base your tax returns on another version of it (e.g. with VAT added). If you charged VAT on an invoice, you have to declare it in your tax returns. If you didn't charge VAT, then you can't declare that you did.


 


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