Latest VAT News - Forvis Mazars

Input VAT deduction for future shareholders and pre-incorporation companies - BMF circular letter dated 12 April 2022

After many years, the tax authorities have adopted the ECJ case law in their circular letter of 12 April 2022, according to which future shareholders and pre-incorporation companies can, under certain conditions, claim input VAT deduction for purchases that are transferred to the company. The underlying case law is quite complex. Whether the conditions are met must be carefully examined in each individual case.

Subsidies from the municipality to sports clubs may not be VAT taxable - BFH ruling V R 17/20

In the opinion of the tax authorities, based on previous case law, payments for the assumption of tasks by corporate bodies under public law have always been taxable remuneration for services. However, in a recent ruling (V R 17/20 of 18 November 2021, published on 17 March 2022), the BFH (Germany’s Federal Court of Finance) decided otherwise. This case illustrates the need to carefully examine whether the entrepreneur is really performing a task for the municipality or is acting in its own interest.

Direct claims in case of wrongly paid VAT - BMF circular letter dated 12 April 2022

If the recipient of a supply pays German VAT to the supplier even though no VAT is due in Germany, the customer must generally reclaim the VAT from the supplier. In 2007, however, the ECJ had already ruled in its "Reemtsma" judgement that the customer may have to be granted the right to have the VAT refunded directly by the tax office. In a letter dated 12 April 2022, Germany’s Federal Ministry of Finance (BMF) formulated criteria for such a direct claim and arguments for excluding it, using this judgement as a basis.

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.