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The Federal Ministry of Finance has amended the VAT Application Decree with a letter dated June 15, 2022 [https://www.bundesfinanzministerium.de/Content/DE/Downloads/BMF_Schreiben/Steuerarten/Umsatzsteuer/Umsatzsteuer-Anwendungserlass/2022-06-15-USt-Beteiligung-Steuerhinterziehung.pdf?__blob=publicationFile&v=2]:

The tax office bears the burden of proof for the bad faith of the business owner, i.e., that the business owner knew or should have known that, with the input or output transaction, they were participating in a transaction that was involved in tax evasion at a preceding or subsequent stage of the supply chain.

The tax office bears the burden of proof for the bad faith of the business owner, i.e., that the business owner knew or should have known that, with the input or output transaction, they were participating in a transaction that was involved in tax evasion at a preceding or subsequent stage of the supply chain. The assessment of the facts under criminal and administrative law is irrelevant for the denial of input tax deduction or tax exemption:

“The prerequisite for applying the provisions of Section 25f of the German VAT Act (UStG) is that the objective and subjective elements of Section 370 of the German Fiscal Code (AO) or Sections 26a or 26c of the German VAT Act (UStG) are fulfilled at at least one stage of the supply chain. A criminal conviction or administrative fine is not required. The tax office is not bound by decisions in criminal or administrative proceedings when applying Section 25f of the German VAT Act (UStG).”

– Section 25f.1 Paragraph 3 of the German VAT Application Decree (UStAE - new version)

If a business owner wants to secure their right to input tax deduction or tax exemption, they are subject to increased disclosure and documentation obligations designed to ensure they have not been involved in tax evasion. If the business owner fails to fulfill these obligations, the tax authorities will assume bad faith.

Indications of tax evasion are said to exist in the following cases:

“Indications within the meaning of paragraph 4, sentence 3, exist, for example, if:

• the entrepreneur is solicited/requested by a third party to participate in transactions where the third party dictates the framework for the transaction (e.g., mediation of participants, specification of purchase/sales prices, payment terms, or delivery/service routes);
• financing of the purchase of goods is only possible after the goods have been sold;
• multiple sales of goods are observed;
• the entrepreneur is offered goods or services whose price is below the market price;
• cash payments or unusual payment processing occur, which are not customary in the industry;
• the contact persons in the companies or the contact persons in the companies frequently change;
• the participants lack professional experience and industry knowledge;
• the participants repeatedly relocate their registered office;
• there are doubts about the accuracy of the information provided by the participants (e.g., due to discrepancies between the company's purpose or business addresses and the information in the commercial register);
• the company's purpose as stated in the commercial register does not correspond to the business actually conducted The company's purpose corresponds to;
• the entrepreneur is offered a quantity of goods or a scope of services that is unusual for the size of the company in the industry (e.g., unusually high quantities despite being a new business);
• the parties involved do not have sufficient means of contact (e.g., a website without a legal notice, telephone number, or email address);
• unusual terms of service apply (e.g., the services are provided by or to a company not involved in the transaction);
• the entrepreneur can determine from accessible sources of information (e.g., internet research) that delivery of the goods to the delivery address specified by the customer appears to be impossible.

– Section 25f.1 Paragraph 5 of the German VAT Application Decree (UStAE - new version)