With effect from 1 January 2016, the old regulation on the status of legal entities under public law as taxable persons was revised. It was no longer intended to be based on the corporate income tax concept of a "business of a commercial nature". The legislator already considered a transitional regulation of five years to be necessary at the time, as there were fears of considerable problems arising for the public sector during the changeover. The latter proved to be the case, although it is also true that most public bodies, especially the federal and state governments, only began implementation shortly before the transition period was due to expire. The Covid pandemic, therefore, became a convenient excuse for extending the transitional period by a further two years. After these two years had elapsed, the war against Ukraine was eventually used as a reason to extend it by another two years, until 1 January 2025. However, many of those affected have evidently still not solved the considerable changeover problems. The legislator now wants to introduce a further extension - to eleven years (!) - in the 2024 Annual Tax Act. The succinct grounds given were: There are still other fundamental questions regarding the application of the law, which lead to great uncertainty among those involved. Yet practice has shown, time and again, that legal issues can be resolved (albeit sometimes with unintended results). It is rather the practical implementation that proves to be problematic. The subsequent explanation that, based on the experience of the last two years, there is still no reason to fear any significant impairment of competition as a result of the renewed extension of the transitional regulation" seems similarly strange in this context: After all, the objective of the new regulation in sec. 2b of the German VAT Act was always the more effective protection of the private sector against distortions of competition caused by the economic activities of the public sector. I never quite understood this, because the concept of a "business of a commercial nature" is also linked to the competition criterion. Be that as it may, some of those responsible will be pleased at the prospect of an additional two years. But would it really be wise to wait another two years before making the switch? The answer is not so simple. The new extension has advantages and disadvantages:

 

The legislator is launching another attempt to re-regulate the VAT exemption of educational services. The objective is to fully transpose Union law into national law. The latest jurisprudence of the ECJ and the German Federal Fiscal Court is to be taken into account. One innovation is that the certification procedure will be abolished. In future, school and university education, initial and further training, as well as vocational retraining and closely related supplies will benefit. In order to benefit from the VAT exemption, the entity must be a legal entity under public law entrusted with such tasks or another general education or vocational training institution. The definition of an organization may also include natural persons, associations of persons and profit-making entities. In the case of training provided by other general education or vocational training institutions, the VAT exemption only applies if the respective institutions do not systematically aim to make a profit. With regard to the question of what can be subsumed (in detail) under educational services, the legislator refers to the recent jurisprudence of the ECJ and the German Federal Fiscal Court. So-called leisure activities are not VAT-exempt. For public bodies and non-profit organizations, the new version is to be welcomed. This will bring calm to the continuing education sector. Also, certain types of cooperation will, in the future, be favored.

 

In future, (all) supplies of services closely related to sport or physical training by non-profit organizations provided to persons practicing sport or physical training will be VAT exempt. Previously, only those sporting events, whose income consisted of participation fees, were exempt from VAT. All umbrella organizations that work for sports clubs in the area of marketing and attracting sponsors will benefit from the extension of the VAT exemption. Finally, all clubs will be pleased if they provide facilities that are closely related to sport or physical training. The downside, of course, is that input VAT deduction from the construction of the sports facilities will be excluded.

 

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