2. Fiscal Background of Turnover Tax Carousels
When assessing the legal situation with regard to turnover tax, a distinction must be made between the various persons or functions of a supply chain:
The in-out buffer located at the beginning of the chain in another member state declares a tax-free intra-Community supply (§ 4 Paragraph 1b, § 6a UStG – German VAT Law) to the national tax authorities responsible there.
The missing trader, on the other hand, declares to the tax office that he has sold the goods to a domestic buffer and accordingly shows VAT in his invoices. However, he does not actually deliver the goods.
The buffer (in the first place) applies for an input tax deduction from the turnover tax separately shown by the missing trader in his invoices. The buffer behaves unobtrusively from a tax point of view. This is because it sells goods as the last link in the chain to other buffers or to the distributor. Input tax and sales tax are therefore roughly in balance.
Due to the sale of the goods to other European countries, the distributor declares a tax-free intra-Community delivery for which no sales tax is incurred. The distributor applies for input tax deduction from the buffer invoice. This results in a so-called input tax overhang, which is reimbursed by the tax authorities.