Calculation of tax on ancillary services

The following article contains a simplified summary of our lawyer’s advice on the calculation of tax on ancillary services in German Market. We do not claim any of the statements made to be legally binding.

PermalinkProblem and solution

Since the release of version 2.4.4 German Market has supported the dynamic calculation of VAT on ancillary services (e.g. shipping costs and COD charges) in accordance with German and Austrian law.

WooCommerce taxes shipping costs at a fixed tax rate. German and Austrian legislation, on the other hand, requires tax on ancillary services to be calculated dynamically as a proportion of the tax due on the goods currently in the cart. It is not sufficient to simply tax shipping costs at the highest tax rate in the cart.

The legislator has therefore created a dilemma for traders: On the one hand, B2C transactions must always be based on gross prices – “Shipping: $10 plus dynamically calculated taxes” is therefore not an option. On the other hand, it is impossible to definitively calculate the gross value of flat-rate shipping costs when the dynamic calculation of the correct tax rate has yet to occur.

Only the maximum value of ancillary services can be calculated in advance – and only if all products in the cart are subject to the maximum rate of VAT (19% in Germany, 20% in Austria).

To give an example, the maximum rate of VAT in Germany and net, flat-rate shipping costs of €10.00 currently yield a maximum gross value of €11.90. And it is this exact value that the customer needs to be notified of on the shipping costs page. Our lawyer is of the opinion that the consumer can reasonably be assumed to accept a marginally lower figure if the difference does not result in a competitive advantage for the trader and a corresponding notice is displayed in a suitable place.

PermalinkNotice on the shipping costs page

Since the release of version 2.4.6 the text templates that come with German Market have included a corresponding notice in the template for the shipping costs page:

[Note to traders: The following passage is essential if you charge flat-rate shipping costs. If you do not the passage can be deleted]

Shipping costs are charged at a flat rate of EUR [VALUE] and are inclusive of statutory value-added tax (VAT). The fact that the amount of VAT included in shipping costs is calculated on the basis of the goods purchased means that it may decrease if some of the goods purchased are subject to a lower rate of VAT (e.g. books). This, in turn, means that definitive shipping costs can only be calculated during the order process. As it is not permitted for them to increase they will only be adjusted to your benefit (i.e. reduced).

Once you have checked the applicability of the above passage to your own shop with your legal advisors it can be copied out of the HTML file and pasted into an existing shipping costs page.

PermalinkCalculation of tax on shipping costs

The following calculation must be carried out for every tax rate in the cart:

($shippingCosts / $netCartSubtotal * $totalNetValue) / 100 * $taxrate
  • $taxrate = z.B. 19%
  • $shippingCosts = in den Einstellungen festgelegte Gebühr; wird als Nettoeingabe behandelt
  • $netCartSubtotal = Zwischensumme (Nettowert) des Warenkorbs vor Steuern und Nebenleistungen
  • $totalNetValue = Summe (Nettowert) aller Produkte im Warenkorb, die mit $steuersatz besteuert werden

Example: Cart containing 2 products taxed at different rates

$shippingCosts = $10,00 (treated as a net value)

Price Tax rate Plus VAT
Audio CD $33,61 (net) 19% $6,39
Book (hard cover) $19,62 (net) 7% €1,37
Cart subtotal $53,23 (net)
Flat-rate shipping costs 410,00 (net) 19% & 7% 19%: $1,207%: $0,26
COD charge 45,00 (net) 19% & 7% 19%: $0,607%: $0,13
VAT (19%) $8,19
VAT (7%) €1,76
Total €78,18 (gross)

PermalinkCalculation of tax on COD charges

As in the case of shipping costs, COD charges are also classified as so-called “ancillary services”.
Tax on COD charges is therefore calculated using exactly the same formula as tax on shipping costs.