Despite the continued existence of doubt from the perspective of Union law, the German Federal Fiscal Court has, once again, ruled that sister companies cannot form a VAT group. In its judgment, the Court also commented on economic links through the letting of office space. Since both of these abovementioned aspects frequently exist in practice in groups and in smaller company structures, the relevance of this judgment extends beyond the individual case.
A holding company claimed input VAT deduction from procured services, which services it passed on as a contribution in kind to its subsidiary.
Due to the fact that the subsidiary only rendered VAT exempt supplies, a successful claim would have resulted in an expansion of the possibilities for input VAT deduction. In its judgment of 8 September 2022 (Case C-98/21), the ECJ upheld the doubts of the Federal Fiscal Court. The holding company was found not to be entitled to input VAT deduction.
In its ruling of 07.11.2019, the German Federal Fiscal Court decided that the concept of immovable property for income tax purposes does not have to be congruent with that for VAT purposes. Rather, movable objects can also constitute buildings for income tax purposes. The German Ministry of Finance has taken this as an opportunity to update its letter on the topic of construction withholding tax. This subject is of special interest due to recent geopolitical developments and the associated rethinking of energy production - as the ruling dealt with photovoltaic systems. However, the scope of application is of course much broader and extends to cover all types of structures and parts thereof.
If the tax office denies a recipient his input VAT deduction, the recipient, under certain conditions, is granted a direct claim (= so-called Reemtsma claim) against the tax office.
Shortly after the Federal Ministry of Finance’s letter, the Fiscal Court of Münster referred a related question to the ECJ (decision of 27 June 2022 – 15 K 2327/20 AO; Schütte - C-453/22). It asked the ECJ to clarify some important questions of application. In essence, this concerns the relationship between the supplier’s VAT adjustment procedure of the unduly charged VAT and the recipient’s Reemtsma claim. It should also be clarified to what extent the beneficiary must take civil action as a matter of priority.
Trading in emission reductions for the purposes of the greenhouse gas reduction quota (GHG quota) has grown significantly in importance as a result of a change in the law with effect from 2022. However, the tax authorities have so far only selectively commented on the VAT treatment of the supplies of services generated by the various participants in GHG quota trading. All parties involved have significant pitfalls to take into account and should examine their relationships and VAT treatments with respect to possible risks.
Specific due diligence and reporting obligations for digital platform operators (DAC7) shall come into force on 1 January 2023. On 12 July 2022, the Federal Ministry of Finance presented a respective draft bill. Affected platform operators are now challenged to adapt their previous practice of recording to the new requirements by the end of the year.
Under the banner of combating VAT fraud, numerous Member States are currently racing to introduce mandatory e-invoicing systems. Also In Germany, the coalition parties favour combating VAT fraud by means of e-invoicing as evidenced in the 2021 coalition agreement. The EU Commission is also currently preparing draft legislation under the heading "VAT in the Digital Age” concerning, among other things, electronic reporting obligations by means of e-invoices at EU level. Our latest Newsletter presents you with a summary of the pre-existing or announced e-invoicing obligations for businesses in selected countries.
Chain transactions are sometimes wrongly assessed due to incorrect allocation of the transport. In such a case, there is often also the risk of a safety-net acquisition tax arising according to Art. 41 EU of the VAT Directive. The ECJ recently had to decide whether this provision also applies if the acquirer uses a VAT number from the country of departure. The ECJ went on to affirm this. However, it also limited the scope of application. This limitation should particularly be relevant for cases before implementation of the Quick Fixes. A double taxation due by virtue of the safety-net acquisition tax would violate the principles of EU law. If this approach is taken further, it must apply not only to chain transactions, but also to two-party constellations.
The legislator has reduced the interest rate for interest on arrears and tax refunds in accordance with secs. 233a and 238 of the German Fiscal Code from 6% to 1.8% per annum. The new interest rate applies to interest periods from 1 January 2019 onwards. This was decided by the German Bundestag (on 23 June 2022) and the German Bundesrat (on 8 July 2022).
In doing so, the legislator intends to fulfil its obligation under the Federal Constitutional Court’s judgment of 8 July 2021 to newly regulate the amount of interest set down in sec. 233a of the German Fiscal Code. Unfortunately, the legislator fails to take the opportunity to further reform the interest regulations of the German Fiscal Code. Thus, for all other types of interest (in the case of suspension of execution, deferral, evasion, litigation), the rate remains at 6% per annum. Further court disputes are thus foreseeable.
Due to recent geopolitical developments and the resulting supply bottlenecks, supply chains are under scrutiny. Against this background, production is, in many instances, also being relocated to other countries, whether a manufacturer’s own or that of subcontractors (toll manufacturing / extended workbench). When assessing the VAT consequences, customers' tools should not be forgotten. The practical handling of tool purchases and sales is very often an ongoing challenge. But the relocation of tools can also be relevant for VAT purposes.