The Federal Fiscal Court has recently amended its case law regarding VAT groups and has decided that a partnership may be a controlled company. The heads of unit regarding VAT have discussed the judgments and the results have now been published by the Upper Tax Authority Frankfurt/Main. Fundamentally, the decisions are unlikely to be generally applicable. Right now, the tax authorities only recognize a GmbH & Co. KG, which is completely controlled by a person, as a part of a VAT group.

On 25 February 2015, the Federal Fiscal Court published two pathbreaking decisions regarding the allocation of the transport in chain transactions: XI R 30/13 and XI R 15/14 (see Newsletter 12/2015). In particular, the Court decided that sec. 3.14. para. 8 sentence 2 of the Administrative VAT Guidelines is not fully compatible with the jurisprudence of the ECJ. The allocation of the transport and the place where the right to dispose of the goods is transferred cannot be determined based on who has ordered or carried out the shipment. In its judgement XI R 30/13, the Federal Fiscal Court referred the case back to the Fiscal Court Rheinland-Pfalz because of missing factual determinations. The Fiscal Court redetermined the case and delivered its decision on 31 May 2016 (3 K 1364/15). The result is not surprising. The Fiscal Court followed the guidelines of the Federal Fiscal Court. However, the Court’s reasons for its decision are partly astonishing.

If an asset is transferred to a partnership, from a VAT perspective, this can be considered to be a transaction against remuneration or free of charge. The latter may lead to a definite VAT burden if the original purchase of the asset entitled to input VAT deduction. What is decisive is how the contribution is posted. The fiscal authority has now changed its view based on Federal Fiscal Court case law. Although the case law concerned the income tax treatment, the same is likely to apply to VAT. How capital accounts are defined and on which account the transfer is to be posted should always be examined.