Latest VAT News

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.

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.

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.

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. In the case of a normal restaurant with waiting staff and a tablecloth, the distinction is obvious – but what about today’s many fast-food alternatives? The BFH (Bundesfinanzhof = Germany’s Federal Fiscal Court) dealt with the issue of a food court in a shopping centre in its decision dated 26 August 2021, published on 2 December 2021 (V R 42/20).

In order for input VAT to be deductible, the purchased services must be directly and immediately related to an output transaction giving rise to an input VAT deduction or, as general expenses, to the overall economic activity. Hungarian authorities wanted to deny the input VAT deduction because the expenses were useless and overpriced. The ECJ (C-334/20, 25 November 2021) rejects this in principle - but there seems to be a certain limit.