By judgments (of 02.12.2015 and of 19.01.2016) two Senates of the Federal Fiscal Court follow the guidelines of ECJ regarding VAT groups – however to a different extent. It´s agreed that capitalistic structured partnerships may qualify as potential controlled company of a VAT group although the wording of para. 2 sec. 2 no. 2 German VAT Act only refers to legal persons. Whereas the V. Senate of the Federal Fiscal Court concluded by judgment of 02.12.2015 that partners of potential controlled companies in the form of partnerships all need to be persons who are financially bound to the business of the controlling company, the IX. Senate of the Federal Fiscal Court avoided this restriction.
Further, the Federal Fiscal Court in his judgment of 19.01.2016 also ruled about the right of input VAT deduction of an entrepreneurial holding company and generally granted the right to fully deduct input VAT regarding general costs. The previous argumentation that input turnovers that are made with regard to the non-entrepreneurial holding of the shares do not enable to input VAT deduction, is abandoned.
However, input VAT deduction is restricted if the holding company does not provide management services to the controlled company, but VAT exempt financial services like loans or interest income with credit institutes. Something else would only apply if these transactions could be qualified as incidental transactions which can be disregarded due to the simplification rule of para. 43 no. 3 German VAT Implementation Code. This was however denied in the case at hand.
The recent two judgements of the Federal Fiscal Court in practice have the following impact:
- Continuously hybrid holding will have to determine an adequate VAT control key. Clear specifications of the financial offices would be eligible in this regard.
- The restrictions of input VAT deduction may be avoided by opting for VAT in accordance with para. 9 German VAT Act. The qualification as incidental transaction will generally not be possible.
- VAT groups may generally also be formed with partnerships as controlled companies. The specifications of Federal Fiscal Court and ECJ have to be observed. Since ECJ rejects the right to directly refer to the VAT-Directive the respective financial authorities should be involved.
- A clarifying letter of the Federal Ministry of Finance is currently expected. To receive legal certainty the practice often demands that the legislator should provide VAT groups with the right of application as well as a determination procedure. The further legal development will have to be awaited.