Great tradition: the local school organizes a school festival and invites everyone to come in the Official Gazette. Class 6A students are planning a class trip soon, and therefore offer a cake bazaar at the festival to fund the trip. Parents and grandmothers donate the cake, which is then sold for 1 euro each. At the end of the festival, all cakes are glued. Everyone is happy. Until, yes, until the tax office gets involved. In the future, this will prompt the class teacher to properly tax the income from the sale of baked goods. The reason: the sale of baked goods should be prevented from distorting the competition in favor of the local baker. After all, the master baker also had “Grandma’s apple pie” on display and had to pay sales tax.
The new value-added tax directive makes life difficult for municipalities
The scenario is not fiction, but law from the next year. Then the EU VAT directive (sorry for the brutal word) will come into effect. For municipalities, this means that they have to evaluate all the services they provide to see if they can be provided by a private service provider. The only exceptions are sovereign tasks, such as issuing an ID card. But things look very different when it comes to green maintenance and winter service. If the yard of the building helps with the sports field in the neighboring municipality and mows the lawn as part of the inter-municipal cooperation, this will soon be subject to sales tax. Finally, even a local gardener could do the job.
So a new, unexpected torrent of bureaucracy is pouring into the town halls. Crowds of employees will be busy for months examining every transaction in management for “sales tax effects”. Whether in the yard, the outdoor pool or the daycare center – everything must be tested. Using grandma’s apple pie as an example, it’s easy to show that the test isn’t that easy. Because if the income from selling donuts goes to school, it’s obviously subject to sales tax. On the other hand, if the parents’ association organizes a cake market and the money goes to the association, it is not subject to sales tax up to a certain amount. It is also important to identify the target group through Cake Bazaar. If it is an “indoor party” only for students and parents, then all is well, but if the cake is sold at the local Christmas market, it is again subject to sales tax.
“It’s hard to get someone to understand something when they are being paid for not understanding it.”
Quote from Daniel Caspari
The VAT system is ridiculous – and practically unenforceable
But it gets even more ridiculous: If the cake is consumed on site, a value-added tax of 19 percent is applied. If Aunt Erna rolled out the cake for you to enjoy at home, a 7 percent VAT would be due. It gets especially silly when the students also have a coffee machine. Cappuccinos are generally subject to a value-added tax of 19 percent, but if Aunt Erna drank a latte macchiato with cake, it’s only 7 percent. It doesn’t matter if she drinks it on the spot or takes it to a school festival and thus tells her to “go”. Reason: Latte macchiato is not considered a coffee drink (19% VAT) but as a milk drink (7% VAT). But be careful: if Aunt Erna is lactose intolerant and orders a latte macchiato with soy milk, the 19% VAT will be charged again. Because soy milk is not a staple food but a luxury food. Understood? We can say with a lot of sarcasm: At this school festival, Class 6A learns a lot about our tax system. Very practical lessons.
As a result, citizens feel “cheated” by their local governments. Greetings from the disappointment of politics!
Politicians defend the value-added tax system and call for “creative circumvention of the law”.
I find it worse how politicians react to the debate. In an interview with a local newspaper in Baden-Württemberg, the European Parliament member for the region, Daniel Caspari, was asked about the situation. His literal answer: “I appeal to the municipalities: be creative.” Specifically, he advises municipalities to go around the regulation. In the current case of Grandma’s apple pie, this might mean something like: Guests are asked to make what they consider an appropriate donation at a piggy bank. The cake was no longer sold, but was abandoned. On the issue of cooperation between municipalities, using the example of mowing the lawn in a sports field in the neighboring municipality, he says: “Who says that the municipality cannot provide this service as part of the financing of its sports facilities?”. Astonishing: Where politicians used to promise tax cuts and reduced bureaucracy, they are now promising a “creative circumvention of the law.”
I would like to respond to Daniel Caspari with a quote from American writer Upton Sinclair: “It is hard to get someone to understand something when they are paid for not understanding it.” More: It is a conscious request to the municipalities to extend the laws as far as possible until they are moved to the point of absurdity. It’s not creative, it makes citizens feel ‘fooled’ by their local government, to describe it politely. But then you will be surprised when more and more people turn away from the municipality and get frustrated. Greetings from the disappointment of politics! Let’s hope Grandma doesn’t think twice about whether she really wants to contribute cake to her grandson’s school festival under the circumstances.