First “timid” amendments to VAT by new Federal Government

VAT Newsletter 10/2014
The Federal Government has submitted a draft for the adaption of the national tax law to reflect the accession of Croatia to the EU and to amend further tax law provisions. However, what is of particular interest is not the accession of Croatia but rather the long overdue corrections to the VAT law, such as those concerning the minimum taxable amount or relating to the VAT exemption rules, which will now be made.

1. Reason

According to the coalition agreement of the German Federal Government, no major amendments are to be made regarding VAT. At the same time, the draft for “adaption of the national tax law to the accession of Croatia to the EU and amendments of further tax law provisions” has been submitted. In the following, the main amendments will be briefly outlined.

2. VAT exemptions

The tax exemption rules for child day care services will be adapted in sec. 4 No. 25 of the German VAT Act to meet requirements of the amended version of the law for the support of children.

In the future, an independent regulation of exemption from VAT for employment services will be created in sec. 4 No. 15b of the German VAT Act. According to the SGB II (Social Security Code), integration services and, according to the SGB III, services of active employment promotion as well as comparable services will, in future, be exempt from VAT. The basis for the amendment of the law is sec. 132 para 1 letter g of the VAT Directive, according to which “the supply of services and of goods closely linked to welfare and social security work”, under EU law, are exempt.

In terms of the basis for the law, the legislature makes significant comments regarding the interpretation of bodies concerned with and devoted to social wellbeing. According to the legislature, a body devoted to social wellbeing will only be found to exist if the said organization is approved by a competent authority or it has concluded a contract with another body for basic provision. The legislature pointed out that an individual could also be “a body”. At the same time, it is pointed out that an activity acting as subcontractor will not be sufficient (see KMLZ-Newsletter 34/2013).

EU law will also be adapted in the case of VAT exemption rules for the supply of staff by religious or philosophical institutions. In the past, this supply of staff was VAT exempt only if the supply had been carried out for non-profit charitable, church or school purposes.

In the future, it will be decisive for the application of the VAT exemption that the staff provided by the host establishment is deployed for hospital care and medical care hospitals, welfare and social security work, protection and education of children or young people, school or university education as well as vocational training or retraining. In principle, the host establishment has to carry out VAT exempt services. However, if the personnel are to be provided for spiritual support, for example, for Eucharistic celebrations, the host establishment does not need to meet further requirements.

It has also been clarified that the “supply of staff”applies to both, employees as well as self-employed personnel.

3. Legal presumption of the commissionaire structure in the case of telecommunications

The fiction of a commissionaire structure pursuant to sec. 45h para 4 of the German Telecommunication Act (TKG) will be taken over by the German VAT Act. The new version will be the subject of the next newsletter.

4. Limitation of the minimum taxable amount

According to sec. 10 para 5 of the German VAT Act, the taxable amount shall be the full cost to the taxable person of providing the supply with respect to a supply involving family or other close personal ties and to his personnel or relatives if the agreed consideration is lower than the costs within the meaning of sec. 10 para 4 of the German VAT Act.

A particular problem is the minimum taxable amount in cases where an asset is provided for use because acquisition or production costs are also included in these costs within the meaning of sec. 10 para 4 of the German VAT Act. They have to be spread evenly over a time period that, in accordance with sec. 15a of the German VAT Act, corresponds with the definitive depreciation period applicable to the asset (5 years for moveable property and 10 years for buildings).

The legislature restricts this provision in so far that the open market value is the maximum limit for the taxable amount. According to the explanatory memorandum of the draft law, the open market value should be determined by the consideration an external third party at the place of supply typically has to pay for comparable supplies.

The legislature has tried to meet the requirements of the jurisdiction (see inter alia ECJ judgment of 29.05.1997, C-63/96 as well as Federal Finance Court, judgment of 19 June 2011, XI R 8/09). According to the legislature, the application of the minimum taxable amount requires that there is a risk of fraud or tax avoidance. This was lacking in the aforementioned case, if the agreed consideration corresponds to the open market value or if the entrepreneur pays VAT for the supply based on the open market value or if the costs according to sec. 10 para 4 of the VAT Act are higher than the open market value.


Prof. Dr. Thomas Küffner
Lawyer, Certified tax consultant, Certified public accountant
Phone: +49 (0)89 / 217 50 12 - 30

As per: 16.04.2014