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.