Value-Added Tax: Change in the Tax Base

If the tax base for a taxable transaction has changed, the business owner must adjust the tax amount on their invoice. As a result, the input tax deduction of the business to which this transaction was made must also be adjusted. This does not apply if the business does not derive any economic benefit from the change in the tax base.

If, in such cases, another business entity receives an economic benefit as a result of the change in the tax base, that business entity must adjust its input tax credit. In the case of price reductions or refunds granted by a business operator in a supply chain to a customer who is not an immediate downstream recipient in that supply chain, a reduction in the tax base occurs only if the customer’s purchase of services within the supply chain is subject to tax in Germany.

The input tax deduction need not be adjusted if a third-party business pays the tax amount attributable to the reduction in consideration to the tax office; in this case, the third-party business is liable for the tax. Adjustments must be made for the tax period in which the change in the tax base occurred. The adjustment must be made for the tax period in which the other business entity receives an economic benefit.

This applies mutatis mutandis if

1. the agreed consideration for a taxable supply, other service, or a taxable intra-Community acquisition has become uncollectible. If the consideration is subsequently collected, the tax amount and the input tax deduction must be adjusted again;
2. payment was made for an agreed-upon delivery or other service, but the delivery or other service was not performed;
3. a taxable supply, other service, or taxable intra-Community acquisition has been rescinded;
4. the purchaser maintains records as required by § 3d, sentence 2, of the German Value-Added Tax Act (UStG);
5. Expenses are incurred within the meaning of Section 15(1a).

If import sales tax that has been deducted as input tax has been reduced, waived, or refunded, the business owner must adjust the input tax deduction accordingly. If the consideration for supplies or other services subject to different tax rates for a specific period is changed collectively (e.g., annual bonuses, annual rebates), the business must issue a document to the recipient of the services showing how the change in consideration is allocated among the transactions subject to different tax rates.