§ 2 b German VAT Act: Significant adjustment effort for corporations under public law
By Brigitte Jakoby, Jakoby Dr. Baumhof Wirtschaftsprüfer Steuerberater Rechtsanwälte
The VAT taxation of public authorities has been reformed by deleting § 2 para. 3 UStG (German VAT Act) and creating the new rule § 2 b UStG. With this change, public authorities are facing a major turning point.
Up until 31 December 2016 they had to decide if they would adjust to the new rules immediately from 1 January 2017 or still continue to use the old regulation for the next five years to gain more time for the necessary changes.
So what is new? In principle, when public authorities are acting as such they fulfil public services without having to charge VAT (an entity of public law always carries out an act of a public authority when it is performing within the framework of a public special regulation). With the only exceptions set out in § 2 para. 3 UStG, this was the basic VAT principle before the aforementioned change of the German VAT Act. Now, under the new legislation, if the public authorities are acting on the basis of private law or the activity leads to distortions of competition with private entrepreneurs, then the public authorities are treated like a private entrepreneur and are then taxable according to normal VAT rules. This means that, in particular, assistance services and services within the framework of asset management, carried out by a public authority, will now be taxable. According to a statement from the German Ministry of Finance, all kind of revenues of entities of public law have to be checked for the obligation to pay VAT.
Public authorities will need to establish a tax department as well as an internal tax control system. For small municipalities, this will be a great challenge. Not many of them have the budget and/or the manpower to comply with the new VAT burdens. For suppliers or customers dealing with public authorities, this creates the additional need to check the VAT status of the authority and the nature of their sales.
Brigitte JakobyJakoby Dr. Baumhof - Wirtschaftsprüfer Steuerberater Rechtsanwälte, Rothenburg o.d.T., Germany
T: +49 9861 9405 0
Jakoby Dr Baumhof – Auditors Tax Consultants Lawyers – is a medium-sized interdisciplinary company located in the south of Germany, with offices in Rothenburg o.d. Tauber, located in Northern Bavaria, and Ebersberg, near Munich.
Brigitte Jakoby is a German Chartered Accountant and German Certified Tax Advisor. Since 1987 she has collaborated with her husband Eugen Jakoby, also a German Chartered Accountant and German Certified Tax Advisor. In 1996 she became one of the senior partners at Jakoby Dr. Baumhof.
Published: Spring 2017 l Photo: schulzfoto - Fotolia.com