Observing tax relief rules helps buyers avoid potential problems
March 25, 2011
HEIDELBERG, Germany -- Thinking of using a value added tax relief form to buy a house or maybe to buy your host nation landlord a nice gift' Wrong. VAT relief doesn't do that.
Rules and regulations govern how VAT relief can be used, and according to Rafael Wunsch, program manager and business consultant for Installation Management Command Europe, individuals need to be aware of how to use VAT forms to avoid negative repercussions.
Wunsch explained that before a person attempts to use a VAT relief form, it is important the individual understands that tax relief from host nation value added tax for personal purchases is not an entitlement of U.S. Forces members stationed in Europe, it's a privilege granted by the host nation.
"VAT relief is intended to provide individual tax relief for personal purchases for authorized personnel. It is not intended to help you purchase real estate or help you avoid paying taxes on gifts for non-authorized personnel," Wunsch said. "It's important we use the tax forms as intended to avoid repercussions caused by misuse, such as loss of individual privileges."
For that reason, he said, it is important to know and to follow tax relief rules. Tax relief forms are not discount coupons, but they are important host nation tax documents, similar to a U.S. 1040 tax form.
Not following the rules will eventually have consequences, Wunsch noted.
In addition to loss of tax relief privileges, Wunsch explained that host nation fiscal authorities could file charges against individuals for tax evasion. Also, individuals could be required to pay unpaid taxes plus potential fines.
"General tax relief rules are fairly easy to understand and to follow," Wunsch said. "A couple key guidelines include not buying things for ineligible persons and not buying things for business purposes or resale."
He explained that, generally, items should be for individual use or for authorized personnel. Official guidelines are contained in Army in Europe Regulation 215-6. People may also seek information at local garrison VAT offices or from program management.
The most common issues individuals encounter, according to Wunsch, are:
Using VAT forms for social functions, such as military balls, weddings, and conferences, may or may not be authorized. Contact your local VAT office before engaging the hotel or restaurant. VAT offices are not authorized to issue VAT forms after the hotel or restaurant has been contracted or even after the event occurred. If you let that happen you personally will be required to pay the tax.
Splitting a purchase of more than 2,500 euro across multiple VAT forms instead of using the special and required over 2,500 euro VAT form (NF-2) process.
Buying an item that costs more than 2,500 euro on a regular (NF1) VAT form instead of using the special and required over 2,500 euro VAT form (NF-2) process.
Collecting receipts over a long period of time (more than one month) from one vendor and then obtaining a VAT refund form the vendor, for example, at the end of a year. Some vendors may offer that but it is not permitted.
Conducting unauthorized repairs or replacements related to real estate, such as replacement of heating systems, windows, doors, driveways, roofs, pipes, wiring, and tiles.
Using VAT forms for telecommunication expenses or utilities.
Using a VAT form to buy a vehicle and then registering it in the German system.
Using VAT forms to make purchases for unauthorized personnel.
Following incorrect guidelines provided by vendors. Yes, many vendors do not know the rules. Placing an order with a vendor first or signing a contract or bill of sale and then coming to the VAT office for relief is not authorized. You must have the VAT form with you when placing the order or making the purchase.
The solution to any potential conflict is to talk with the VAT office or program management prior to the purchase to ensure you use your VAT form correctly, Wunsch said, because forms are tracked and purchases are monitored.
"Keep in mind that host nation rules require us to manage all VAT forms within a central database," said Wunsch.
"This database is designed to identify unusual buying behaviors and red flag certain transactions for closer scrutiny," Wunsch said. "In addition, program management and U.S. forces customs personnel screen and spot check transactions to monitor for abuse of the system.
"Suspected violations are reported to the appropriate law enforcement agency for follow-up."
There are some administrative requirements for VAT form users.
Individuals must turn in properly and completely filled out white copies of VAT forms in a reasonable time after the purchase, Wunsch said.
Also, individuals must turn in all VAT forms, used and unused, upon departure from Germany.
"Keep in mind that shoppers can use German VAT forms only with companies that report earnings in Germany," said Wunsch, who added that vendors are not required to accept VAT forms.
"Ask the vendor before making a purchase or placing the order if VAT forms are accepted," he said.
"Also, be aware that in case German fiscal authorities deny a tax relief transaction, you are responsible to pay the taxes, which can be a few years after the transaction.
That will, for example, occur if the receipt or purchase date falls outside the "valid from" and the "valid until" dates in field three of the VAT form."
Wunsch noted that Tax-Relief handouts with more information in English and German are available at all VAT offices.