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Dealing with the reduction of VAT rates – what you need to consider
4. September 2020
On 3 June 2020, the German government adopted a comprehensive economic stimulus package. However, the temporary reduction in VAT rates from 19 to 16 percent and from 7 to 5 percent for the period from 1 July 2020 to 31 December 2020 raises a number of questions in its implementation. In particular, the provisions of the Price Indication Ordinance must be observed.
In essence, there are two questions:
How can you implement the reduction of VAT rates for consumers in trade and services in an unbureaucratic way?
How do you stay in line with the requirements of the Price Indication Ordinance?
What does the Price Indication Ordinance prescribe?
Under § 1(1) of the Price Indication Ordinance, retailers and service providers must indicate in their offers to consumers the required total price including VAT and other price components and, in the case of measurable goods, under § 2(1) of the Price Indication Ordinance the basic unit price, for example the price per kilo or litre.
What exceptions does the Price Indication Ordinance provide for?
§ 9(2) provides for an exception. If a dealer or supplier fulfils these three conditions, he may refrain from changing the total and basic price indication.
The action is limited in time by calendar days
A discount or sales promotion is made public through advertising
There are general discounts in the form of flat-rate rebates.
Either this exemption option also exists for the upcoming reduction of VAT rates on 1 July 2020 and applies to the entire product range or, if information is transparent, only to parts of the product range. The limitation by calendar days could be analogous to the scheduling of the VAT reduction from 1 July to 31 December 2020. In the commentary on the Price Indication Ordinance, temporary price reductions refer to a period of two weeks in some cases. However, an ongoing campaign over a period of six months is also in line with the legal requirements and the intention of § 9 (2).
What does advertising mean in the legal sense of the Price Indication Ordinance?
For the purposes of the Price Indication Ordinance, a local notice on a notice board in the branch, a banner on the website or a reference in catalogues or brochures already counts as advertising.
What is a general price reduction in the legal sense?
A price reduction is understood to be general if it applies across different assortments or product groups. One of the standard cases for the use of the exception under § 9 (2) of the Price Indication Ordinance is the sale of summer or winter goods in a clearance sale. An example is advertising with a 20 percent discount on all winter jackets in the range for one or two weeks.
Is Paragraph 9(2) of the Price Indication Ordinance mandatory?
No. Every company and every provider can decide whether they want to make use of the possibility of exemption under § 9 (2) of the Price Indication Ordinance. It also decides whether it will pass on the reduction in VAT to consumers in relation to the entire product range or only for partial ranges. The application of § 9 (2) of the Price Indication Ordinance does not remove the right of free pricing by suppliers.
Thanks to § 9 (2) of the Price Indication Ordinance, the indication of value added tax on receipts is sufficient.
If a price reduction through advertising is announced in accordance with § 9 (2) Price Indication Ordinance, the correct tax deduction becomes transparent for consumers on the receipts. It also must be entered into the merchandise management system. The legislator also assumes that the interests of consumers worthy of protection are not violated because they pay less than is shown on the shelves.
For these three product groups, the exemption of the §9 (2) Price Indication Ordinance does not apply
Price-fixed articles, such as books. The law on fixed book prices speaks against this.
Prescription drugs, the drug price regulation speaks against this
Newspapers and magazines, which is opposed by § 30 of the Act against Restraints of Competition.
For these three product groups, price reductions by the retail trade are either not possible at all or they are regulated differently from the Price Indication Ordinance.