The grand coalition has agreed on an economic stimulus package to cushion the economic consequences of the Corona crisis. As part of this package, VAT rates are to be reduced from 19% to 16% and from 7% to 5% for six months from 1 July. In addition, the due date for import VAT is to be extended by 10 days. The VAT rate cut is perhaps primarily just an economic stimulus package for tax advisors. There may now be a purchase premium for everything and not just for cars. However, the administrative burden, especially the necessary changes in IT systems for this short period will, for most companies, be considerable. In times of “short-time work” (Kurzarbeit) and vacation season, the implementation will certainly also present itself as a significant challenge. It will also be interesting to observe whether the legislative procedure, an administrative circular that is to be hoped for and the change of forms and systems on the side of the administration, can be realised in the short amount of time available.
Fixed establishments and their requirements are a constant source of questions referred to the ECJ. In practice, it is often not easy to determine whether a fixed establishment exists. The ECJ has previously dealt with the issue of whether a subsidiary can also constitute a fixed establishment of its foreign parent company (C-260/95 - DFDS, C-318/111 - Daimler AG). In the current Dong Yang case (C-547/18), the ECJ was required to concern itself with this question once again.
By means of the Corona Tax Subsidy Act, the legislator intends to relieve the restaurant industry and the public sector from the burden of VAT. To this end, the reduced VAT rate of 7 % is to be applied to the supply of restaurant and catering services provided in the period from 1 July 2020 to 30 June 2021. The transitional period in accordance with sec. 27 para. 22 of the German VAT Act for legal entities under public law as regards the application of sec. 2b of the German VAT Act will be extended by a further two years until 31 December 2022.
The German Federal Fiscal Court has referred a case to the ECJ that overshadows all previous cases. It raises the fundamental question of whether the national legal institution of the VAT group is compatible with Union law. The ECJ's judgment may result in all previous VAT returns of controlling companies being deemed incorrect. Requests for correction would be possible within the limitation period. As a result, a billion euro budget gap would become apparent. The Federal Fiscal Court is clearly in favour of the introduction of group taxation. The legislator will now have to act quickly.
A number of credit institutions calculate their deductible proportion of input VAT using the so-called Philipowski method. Recently, the Munich Tax Court found this method of calculating the deductible proportion of input VAT not to be appropriate. The Federal Fiscal Court has now confirmed this decision. Nevertheless, the following still applies: Every taxable person with partly taxable and partly VAT exempt output transactions can estimate its own deductible proportion of input VAT. If this estimate is appropriate, the tax authorities must accept it.
The Finance Court of Lower Saxony has established that a VAT group also extends to cover the non-economic activity of the controlling company. This means that supplies of services of a controlled company to the non-economic part of its controlling company are not subject to VAT. Furthermore, these transactions cannot be classified as supplies free of charge that are deemed to be subject to VAT. The judgement is not only relevant for the public sector, but also for non-profit institutions and mixed holdings.
The German Federal Ministry of Finance has redefined the principles for the classification of rental and leasing contracts from a VAT perspective. In doing so, it has abandoned the reference to income tax law. In future, two aspects in particular will have to be anchored in rental and leasing contracts. Entrepreneurs should now review existing contracts. New rental and leasing contracts offer potential for design.
The coronavirus SARS-CoV-2 continues to hold the world firmly within its grip. New restrictions are being announced almost daily to contain the spread of the virus. Increasingly, new measures are being introduced to cushion the economic consequences. In Europe, every country has now put together an emergency package. These packages usually include measures in the area of VAT, which are aimed at improving the liquidity of companies. This newsletter provides you with an updated and comprehensive overview of what is happening.
The restrictions being put in place due to the coronavirus are increasing, both in Germany and abroad. It is foreseeable that very many companies will experience severe economic difficulties as a result. The German tax authorities are attempting to mitigate the consequences through various measures, in particular by helping companies to obtain liquidity. This newsletter is intended to provide a brief, up-to-date overview of which measures concerning VAT have been announced and initiated.
Structures in VAT are not common. In the recent case before the Tax Court in Lower Saxony, the parties involved tried to obtain input VAT deduction by contributing the input supplies to the subsidiary company as shareholder contributions free of charge. Is this the new "pull a rabbit out of a hat trick" in VAT law set up with a view to undermining the rules for input VAT deduction?