Latest VAT News
Here, we regularly inform you about new court decisions and other newsworthy developments in VAT matters.
Update: Input VAT deduction of a management holding: advocate general seeks to overturn "intermediary model” - opinion C-98/21
On 23 September 2020 (XI R 22/18), Germany’s Federal Fiscal Court decided to refer a case regarding the input VAT deduction of a management holding company to the European Court of Justice (pending there under C-98/21). The case involved an "intermediary model" in which a company not entitled to a full input VAT deduction interposed a management holding company when purchasing supplies, which then claimed the input VAT deduction from these input supplies. The advocate general (AG) at the ECJ is now requesting that input VAT deduction not be permitted in such cases.
Update: Further amendment of the regulations affecting supervisory board remuneration - BMF circular letter dated 29 March 2022
After both the ECJ and Germany’s Federal Financial Court (BFH) treated the activity of a supervisory board member as not independent and therefore not VAT-taxable, contrary to the practice of the German tax authorities, the BMF adjusted the VAT application decree in a letter dated 8 July 2021. At the suggestion of practitioners, the BMF announced the new changes in a letter dated 29 March 2022.
Direct and immediate connection in the case of input VAT deduction - BFH ruling XI R 10/21
In its ruling of 20 October 2021 (XI R 10/21), published in March 2022, Germany’s Federal Fiscal Court (Bundesfinanzhof, BFH) ruled on the deduction of input VAT from purchases related to a mixture of free and chargeable services provided by a municipality. The ECJ rulings in the "Sveda" and "Mitteldeutsche Hartsteinindustrie" cases have shown that more magnanimity is evident with regard to the required direct and immediate connection of purchases to taxed output supplies. However, this is very difficult to generalise.
Tax relief for aid to Ukraine - BMF circular letter dated 17 March 2022
In a letter dated 17 March 2022, the German Federal Ministry of Finance (BMF) regulates a variety of relief measures affecting those providing aid linked to the war in Ukraine. Some of these rulings may seem familiar because they are similar to those for the relief measures used to address the COVID-19 pandemic and last year’s flood disaster. The VAT-related rulings are briefly summarised below.
New regulation of interest / Penalties for late payment could also be unconstitutional - BMF draft dated 22 February 2022
In its decision of 8 July 2021, published on 18 August 2021, the German Federal Constitutional Court (BVerfG) ruled that an interest rate of 0.5% per month for tax arrears is too high and violates the fundamental right to equal treatment. The German Federal Ministry of Finance (BMF) has drawn up a proposal for a new regulation of interest rates, according to which the interest rate is to be significantly reduced and regularly evaluated in the future. Given the BVerfG's decision, the Regional Financial Courts and the Federal Financial Court (BFH) are also questioning the constitutionality of penalties for late payment.
Electric vehicles and (electric) bicycles - BMF circular letter dated 7 February 2022
To promote climate-friendly mobility, the provision of electric vehicles and (electric) bicycles to employees is subject to preferential wage tax treatment: the 1 % rule may be used to calculate the non-cash benefit, whereby only half or a quarter of the manufacturer's recommended retail price is to be used under certain conditions. In a circular letter dated 7 February 2022, the German Federal Ministry of Finance (BMF) rejects this preferential treatment for VAT purposes, regulates further details of the VAT, and amends the VAT application decree accordingly.
Rebates for chain supplies in the pharmaceutical industry - BFH ruling V R 4/21
The ECJ ruling in the "Elida Gibbs" case clarified that, under certain conditions, an entrepreneur can also claim a reduction in the taxable basis if he grants a rebate not to his direct customer but to a person at the end of a supply chain. For this to be applicable, however, the entrepreneur's transaction must be VAT taxable. The ECJ (C-802/19, 11 March 2021) and now subsequently Germany’s Federal Fiscal Court (Bundesfinanzhof, BFH) (V R 4/21, 18 November 2021) have rejected a creative attempt at a solution by a Dutch pharmacy.
Consumption on the spot: Company canteen - BFH ruling XI R 2/21
The supply of food and beverages can be considered either a supply of goods or a supply of service. As a supply of goods, it may be subject to the reduced VAT rate, but as a "restaurant service" the standard VAT rate applies.
Time of input VAT deduction in case of payment on accruels - ECJ ruling "Grundstücksgemeinschaft Kollaustraße" (C-9/20)
German VAT law does not explicitly regulate the point in time at which the right to an input VAT deduction arises in the case of input services provided by taxable persons using taxation based on payments received. However, in Section 15.2 (2) of the VAT application decree, the tax authorities have, until now, assumed that the input VAT deduction must be claimed in the VAT return period in which the supply is received, even if the supplier taxes the transaction upon receipt of the payment in accordance with Section 13 (1) no. 1 (b) and Section 20 of the German VAT Code. In its ruling of 10 February 2022 (C-9/20), the ECJ declared it infringes EU law that the recipient must claim the input VAT deduction upon payment if the supplier uses taxation based on payments received.
Advocate General criticises German VAT group - Opinion "Norddeutsche Gesellschaft für Diakonie mbH" and "S" (C-141/20, C-269/20)
On 13 and 27 January 2022, the Advocate General at the European Court of Justice (ECJ) issued an opinion on two references for a preliminary ruling from the German Federal Fiscal Court (Bundesfinanzhof, BFH). Unsurprisingly, she concluded that German law is contrary to EU law to the extent that it designates the head of a VAT group as the taxable person instead of the VAT group itself. However, the Advocate General's view that transactions within the VAT group are taxable contradicts previous ECJ case law.