Country-specific updates: Germany

German Federal Tax Court hinders the economic integration in a VAT group for sister companies

According to a recently published judgment of the German Federal Tax Court - BFH, Urteil v. 1.2.2022, V R 23/21 - sister companies with limited relationships between their corporate divisions cannot be part of the same VAT group.

For an economic integration, the corporate divisions of the controlling and the controlled company must be intertwined. The economic integration can also be based on the interdependence between the divisions of two controlled companies. However, there must be more than just insignificant links between the corporation divisions of the companies. In the present case, the rental of readily interchangeable office space was not sufficient to demonstrate such connections.

In the year in dispute, the GmbH received EUR24,000 from the KG for its management activities. The GmbH considered that the amount was not subject to VAT as both the KG and the GmbH were members of a same VAT group.

However, the tax authorities found that the GmbH had provided VAT taxable management services to the KG and issued VAT assessments for the period 2013 to 2015 to the GmbH.

In its judgment, which was in favour of the tax authorities, the German Federal Tax Court upheld previous case law, according to which the controlling corporation must at least indirectly hold shares in the controlled company.

The Court based its judgment on the fact that it was not able to assess which sister company was controlling the other.