New government will not update VAT Group rules
The new German coalition government has confirmed it will not update the rules of for German VAT groups. This disappointing news came in this week’s “Responsibility for Germany” coalition agreement. In particular, following two related ECJ rulings (see below) and German BFH reinterpretations, it was hoped there would be an introduction a long-anticipated application procedure for VAT groups.
Read more in our German VAT country guide.
Organträger German VAT Group regime
Germany’s VAT grouping system, known as “Organschaft,” allows multiple legally independent entities to be treated as a single taxable person for VAT purposes, provided they are closely linked financially, economically, and organisationally. This structure aims to simplify VAT administration and eliminate VAT on intra-group transactions.
-
Controlling Entity as Taxable Person: In Germany, the parent company (Organträger) is designated as the sole taxable person for the VAT group. This approach has been upheld by the European Court of Justice (ECJ) as compliant with EU VAT directives
-
Financial Integration Requirements: German law traditionally required the controlling company to hold both a majority shareholding and majority voting rights in the subsidiaries. However, the ECJ ruled that this requirement is too stringent and not mandated by EU law. A majority shareholding alone may suffice for financial integration, provided the controlling company can impose its will on the subsidiaries .
-
Intra-Group Transactions: Services exchanged between members of a VAT group are generally not subject to VAT, even if the recipient cannot deduct input VAT. This principle was affirmed by the ECJ in the case of Finanzamt T II, providing clarity on the VAT treatment of intra-group services .
Recent European Court of Justice rulings
-
ECJ Rulings: In December 2022, Norddeutsche Gesellschaft für Diakonie mbH (C-141/20) and Finanzamt T(C-269/20) cases, the ECJ addressed several aspects of the German VAT grouping rules:
-
Confirmed that designating the controlling company as the taxable person is permissible.
-
Found the German requirement for both majority shareholding and voting rights for financial integration to be unnecessarily strict.
-
Emphasized that members of a VAT group should not automatically be considered non-independent; their individual economic activities must be assessed
-
-
German Federal Fiscal Court (BFH) ruling: following the above ECJ rulings, the BFH adjusted its interpretation in August 2024:
-
Acknowledged that financial integration can exist without majority voting rights if the controlling company holds a majority shareholding and there is organizational integration, such as identical management bodies.
-
Clarified that services provided by a subsidiary to the non-business area of the controlling company are not subject to VAT, reinforcing the principle that intra-group transactions are outside the scope of VAT .
-
