In practice in the precious metals industry, physical metal is regularly held in collective custody and mixed with the precious metal of other customers. A concretisation of the respective metal is therefore basically not possible. Transactions in the precious metal in question are therefore not carried out directly in physical form, but are rather booked via the corresponding metal account.
In this context, the question now arises from a VAT perspective as to whether such transactions, which are carried out via a precious metal account, are to be regarded as a supply of precious metal or as services. The question has quite significant implications, as supplies are subject to quite different rules for VAT purposes compared to services. This applies in particular to the question of the place of supply, which is especially relevant for cross-border transactions, as well as to the application of a possible shifting of the tax liability (reverse charge).
The question as to the distinction between supply and services regarding transactions via weight accounts has been under discussion for a long time. As a rule, dispositions via metal accounts were qualified as other supplies. Recently, the discussion was additionally fuelled by a ruling of the Highest German Court on Tax Issues of 18 February 2016. In this ruling, the court had decided that the transfer of co-ownership shares in an object is to be treated as a supply. The application of this new ruling to the disposal of precious metal via corresponding accounts was doubtful.
In the current letter, the tax authorities now differentiate as follows:
In the opinion of the Federal Ministry of Finance, the actual underlying transaction is decisive for the qualification for VAT purposes.
According to this, pure transfer postings, i.e. weight account movements that are not based on underlying transactions, are not relevant for VAT purposes. In such cases, there is no underlying transaction at all. This case variant relates in particular to constellations in which weight accounts are transferred from one bank to another. Also included is the case of delivery of metal to a refinery, which then credits the metal to a weight account of the respective customer. In all these cases, no transfer of metal is intended or agreed. So-called transactions for differences or hedging transactions are also not subject to turnover taxation (due to the lack of a turnover transaction).
However, if a disposal of the precious metal is actually agreed, the following distinction must be made:
According to the Federal Ministry of Finance, a delivery is always (and only) to be assumed if the place of delivery, form, denomination and purity of the metal has been specified or if it is intended to specify this before the transfer even at the time of the conclusion of the underlying transaction. The Federal Ministry of Finance lists various indications for this. However, this is not the rule for transactions involving metal accounts, as the metal in question is often not specified.
Accordingly, the Federal Ministry of Finance also states that another service should be provided if the legal position of the weight account holder is limited due to the concrete conditions of the metal storage and the conditions for demanding the surrender of the metal. Indications for an only limited right to the physical metal behind the weight account are, for example, that it is not certain between the parties involved when and whether the metal will be physically made available at all, the location of the stored/physical metal is not known to the weight account holder at the time of the acquisition of the claim or it is not certain between the parties involved in which form, denomination or purity the metals are to be retrieved.
The Federal Ministry of Finance has adapted the VAT application decree in accordance with the principles described above. The letter is a good development, as there is now a manageable clarification. Companies and their tax advisors now have at least some certainty as to which criteria are to be applied for the distinction between supply and other services in the respective cases. Nevertheless, it remains the case that the question of when sufficient concretisation has been made with regard to the transfer of the metal can be difficult to assess. Here, particular attention should be paid to the concrete contract design or contractual conditions and, if necessary, these should be adjusted taking into account the aforementioned letter. Difficult cases are of course still possible.