Country-specific: Germany

German Federal Tax Court: in-game renting services do not fall within the scope of German VAT

As part of an online game, the plaintiff acquired virtual land from the American game operator, parceled it out and rented it to other users within the online game in return for payment of a virtual currency. Accumulated game money (C-dollars) was then exchanged by the plaintiff for US dollars via the game's own exchange service, which he later had paid out in Euros. For this purpose, the plaintiff had registered a trade and also prepared a VAT return.

The German tax office subjected this "rental income" to VAT. It assumed that 70% of the sales were made domestically. The local Tax Court of Cologne, opined that the in-game "renting" of virtual land to other players does constitute a supply within the scope of VAT. In its recently published verdict (hyperlink:https://www.bundesfinanzhof.de/de/entscheidung/entscheidungen-online/detail/STRE202210041/) the German Federal Tax Court decided that in-game renting services do not fall within the scope of German VAT.

Nevertheless, the German Federal Tax Court ruled that any exchange of in-game currency for real money on an exchange platform managed by a gaming operator does constitute a supply of service within the scope of German VAT.

DLA Piper comment: This verdict bears considerable implications for game operators and players. The player can become a taxable person by performing the in-game money exchange with the gaming operator either within the course of his business or via repeated exchanges. The player, therefore, acts as a taxable person by performing supplies subject to VAT. If the respective conditions are fulfilled, the player will be entitled to deduct input VAT from his output supplies.

For the game operator the player possibly becoming a taxable person means that B2B supplies are possible. The gaming operator would be well advised to implement a VAT-ID query, in the course of the player’s onboarding process, in order to determine the player’s status.

German Federal Ministry of Finance clarifies criteria for determining the 10% threshold of VAT treatment of the remuneration of supervisory board members

In its letter dated 29 March 2022, the German Federal Ministry of Finance clarifies the criteria for determining the 10% threshold of VAT treatment of the remuneration of supervisory board members.

Previously the German Federal Ministry of Finance had published its letter dated 8 July 2021 and subjected the remuneration of a supervisory board member to VAT if at least 10% of the remuneration was flexible (i.e. not a fixed amount). Therefore, fixed remuneration of supervisory board members or remuneration with a flexible component below the 10% threshold is not subject to VAT.

The German Federal Ministry of Finance has now clarified that solely those remuneration components paid for supplies rendered in the company’s relevant financial year are to be considered when calculating the 10% threshold. Consequently, the calculation is not based on the calendar year. Moreover, the calculation is dependent on a prognosis. Hence, the beginning of the company’s financial year is the relevant point in time for the evaluation of the 10% threshold.

DLA Piper comment: With the letter dated 29 March 2022 the German Federal Ministry of Finance provides an important clarification and therefore increases legal certainty. The clarifications are applicable in regard to all procedurally open cases. By relying on a prognosis regarding the calculation of the 10% threshold and not requiring an adjustment of this prognosis, the necessity for corrections does not have to be considered in a strict manner. However, the calculation based on the prognosis needs to be documented and should be realistic. Furthermore, regarding the invoicing and the date of taxation / input VAT deduction the different points of time of supply need to be observed.