At the end of September, a cover letter from the German Federal Ministry of Finance made the rounds among precious metals traders, restricting the possibility of differential taxation of imported silver coins.
What is the differential taxation?
Differential taxation, or reduced sales taxation, is intended to create tax fairness. Certain items that have already been sold once (and the full sales tax has been paid) do not have to be fully taxed again when resold by a dealer. With differential taxation, sales tax only has to be paid on the dealer's profit margin (= the difference between the purchase and sales price). The price of the resold product thus became considerably cheaper for the private buyer.
Read more about differential taxation in our knowledge article.
Which products are subject to differential taxation?
In the precious metals sector, dealers sell mainly silver coins, but also platinum coins, subject to differential taxation.(Gold is exempt from sales tax). Difference-taxed silver coins are therefore always cheaper than regular-taxed coins.
On the one hand, the differential taxation was applied to coins purchased (e.g. Austrian silver shillings), which are subsequently resold.
On the other hand, some dealers in Germany also used the opportunity to offer new coins, which had never been privately owned before, in the European market through (re)imports from third countries into the EU subject to differential taxation. Although this process was in accordance with the law, the German treasury probably lost money here, which is why the differential taxation of imported coins has now been changed with immediate effect in the environment of the state's great need for money.
Is this the end of differential taxation?
Not completely. The regulation in Germany merely closes a loophole that related to (re)imported goods. However, this also means that the re-import of silver coins will become financially uninteresting for dealers. In the future, the application of the reduced VAT rate for reimports will only be allowed for actual collector coins whose price is 250% higher than the material value. The bullion coins from non-EU countries, which are interesting for investors and whose price is based on the general silver spot price, will therefore no longer fall under this in the future.
Goods that are actually sold back to the trade by private investors can therefore still be offered by dealers at the reduced VAT rate. However, as of now the supply of goods is thus dependent on the buybacks in the silver purchase of the dealers.
What does it mean?
Differentially taxed silver coins will continue to be available for purchase. However, since the supply of this product can now only be covered by private purchases, there are likely to be supply problems with the corresponding coinage and bottlenecks in availability. As a result, the price of goods subject to differential taxation is likely to rise, and the price advantages over coins subject to regular taxation will shrink.
Without this price advantage for coins, silver bars, which already could not be sold with differential taxation, should become more attractive for investors, since the production costs for bars are lower than those for coins.