Valuable waste – BFH judgement V R 77/22 of 18 April 2024

Facts of the case

A specialised waste management company took over contaminated chemicals from customers which, after their operational use, constituted hazardous waste within the meaning of German law (KrWG) and whose proper disposal the customers had to prove. The waste management company made a commitment to the customer to dispose of the waste in accordance with a legally regulated recycling process and issued a corresponding waste disposal certificate.

The waste management company removed impurities from the chemicals and disposed of them. The purified chemicals were sold as so-called regenerate if they could be reprocessed to a marketable quality. If this was not possible, the waste management company had to have the still contaminated chemicals thermally disposed of at its own expense.

The price for the disposal service provided by the waste management company was based on the type of use of the chemicals and the degree of contamination. The potential recyclability of the treated chemicals was taken into account in the calculation.

In this case, the tax office assumed a barter-like transaction in accordance with § 3 para. 12 sentence 2 UStG (German VAT Code) with an additional cash payment, in which the value of the waste was an additional consideration for the disposal service. The VAT assessment basis of the waste disposal service was to be increased accordingly, as the value of one transaction is deemed to be the consideration for the other transaction in accordance with § 10 para. 2 sentence 2 UStG, in this case plus the cash payment.

BFH decision

The prerequisite for a barter-like transaction with an additional cash payment is that the disposal service was not only remunerated in cash, but also by a supply of goods (here: waste). A supply of goods requires a legal relationship in the context of which the power to dispose of an object is transferred, i.e. the ability to dispose of the object like an owner. This was lacking in the present case, as the underlying legal relationship was not intended to be a supply of goods; the waste was only handed over for disposal. On the one hand, this follows from the fact that the responsibility for proper disposal remained with the customer, even after the disposal order had been placed and the handover had taken place, until the disposal had been finally and properly completed. This means that the waste disposal company did not have the power of disposition over the waste. In addition, the fact that the contaminated chemicals were not marketable goods argued against a supply of goods, as trading is not possible and is punishable under the KrWG. The fact that the waste management company had attributed a certain value to the chemicals did not change this. In addition, the value was only created through subsequent processing steps and did not exist from the outset.

The customers also did not supply the purified chemicals resulting from the processing because the waste disposal company alone bore the risks of storage and chemical processing and the purified chemicals were only newly created as an economic good after processing them.

The Senate also differentiates this decision from other similar cases. For example, the ECJ ruled that the disposal of demolition waste containing scrap metal and the disposal of furniture constituted a barter-like transaction. The difference in the present case is that the power of disposition was transferred. The same applies to the BFH cases in which a company carried out polishing work or metalwork and the contractor was allowed to keep the resulting waste.

Implications

In section 3.16 UStAE (administrative guidelines to the German VAT Code), the tax authorities have so far assumed that a barter-like transaction exists if the waste is of value (under certain further conditions and with simplification rules), without addressing the question of whether the conditions for a supply of goods are actually met. It remains to be seen whether the Federal Ministry of Finance will amend the UStAE accordingly or whether it will declare the judgement to be inapplicable beyond the individual case.

Depending on the legal basis for disposal, waste disposal companies will in future have to carefully check whether they have the power of disposition over the waste. If incorrect treatment only becomes apparent later, this can lead to disadvantages: If an isolated disposal service is assumed, the disposal company only pays VAT on the disposal fee. If it subsequently transpires that a barter-like transaction has taken place, they must also pay VAT on the value of the waste. In principle, they are then entitled to deduct input VAT in relation to this supply of goods. However, this requires a corresponding invoice, which may no longer be obtainable after a long period of time and which has no retroactive effect, meaning that an interest effect may arise in any case.