Differential taxation is a special scheme for the taxation of supplies of movable tangible property. In short, the entrepreneur only subjects the difference between the selling price and the purchase price to sales tax. The sales tax therefore applies practically only to the profit instead of the value of the goods. In the following we explain who can apply the differential taxation and what other special features there are.
1. Taxation of Differences in Sales Tax Law – Introduction
In principle, sales tax is levied on the (net) sales price. At the same time, the trader has a deduction of input VAT from the received services. This type of VAT is referred to as ‘net all-phase sales tax with deduction’.
Example: The car dealer A buys a car from another entrepreneur for EUR 10,000 plus EUR 1,900 VAT. He then wants to achieve a margin of EUR 2,000 on the sale. He eventually sold the car for EUR 12,000 plus EUR 2,280 USD.
As a result, the car dealer A pays EUR 380 to the tax office, as he can claim the EUR 1,900 VAT from the purchase of the car as input tax and owes EUR 2,280 sales tax for the sale of the car.
If the car dealer A bought the car from a private person, however, he has no input tax deduction. Nevertheless, he would actually have to pay sales tax on the full selling price. This problem is addressed by differential taxation in accordance with § 25a UStG.
2. Who can apply differential taxation?
Only so-called “resellers” can apply differential taxation. Resellers are those who normally purchase second-hand goods in the course of their commercial activities and then resell them in their own name (commercial traders), where appropriate after repairs. In addition, organisers of public auctions auctioning second-hand items in their own name and for their own or third-party account are also regarded as “resellers” (§ 25a (1) no. 1 UStG). The purchase and sale of the second-hand goods may be limited to a part or ancillary area of the company. In any case, the most common applications in practice are the used car trade, the arts trade and the second-hand business.
3. For which items does the differential taxation apply?
The differential taxation applies only to certain items. Entrepreneurs must have acquired them in particular within the Community territory (§ 25a (1) no. 2 sentence 1 UStG). In addition, the trader must not be able to make a deduction from the VAT paid on the purchase of the goods. This is because he has acquired the object from the following persons (§ 25a paragraph 1 no. 2 sentence 2 UStG):
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.