Corporate Tax - Germany

Deduction of VAT from Employee Relocation Costs
VAT Rate on Periodicals
Comment

In two recent, final decisions the Fiscal Court of Hamburg declared the Value Added Tax (VAT) Act partly inapplicable and partly unsuited to literal interpretation, in accordance with the EU VAT Directive.

Deduction of VAT from Employee Relocation Costs

In the first case a press agency claimed for deduction of VAT from bills issued to and paid by the agency for the relocation of its employees from Bonn to Berlin and between other editorial office locations. The VAT Act prohibits the deduction of VAT with respect to such expenditures (Section 15(1a)(3)).

The court granted the VAT deduction and held that the national rule is inapplicable according to the Council VAT Directive(1) as the directive disallows the exemption of VAT deduction.(2) The Federal Ministry of Finance followed this ruling and instructed the administration not to apply the German rule anymore.(3) The revenue office withdrew its legal remedy and thus the decision is final.

VAT Rate on Periodicals

In the second case a publishing company requested the reduced VAT rate for a special-interest real estate magazine, the issues of which often contained more than 50% advertisements. The VAT Act grants a reduced VAT rate for newspapers, journals or magazines only if they do not consist "predominantly" (ie, more than 50%) of advertisements (Section 12(1), Annex 2(49)(b)).

The fiscal court granted the reduced VAT rate. According to the court’s ruling, the national rule must be interpreted not literally, but in accordance with the freedom of the press under the Basic Constitutional Law (Article 5) and the EU VAT Directive. The directive offers the reduced VAT rate for periodicals if not "predominantly" devoted to advertising.(4) The court held that the issues were dominated by the interesting and valuable editorial reports and not by the special-interest and general advertisements. The judgment has become final.(5)

Comment

The fiscal court has followed the European Court of Justice (ECJ) and the established jurisdiction practice that national courts must interpret the national law in accordance with the EU directives and apply it only insofar as it can be interpreted in this way. If there is no doubt about the meaning of the directive, national courts are not obliged to make reference to the ECJ for a preliminary ruling (Article 234 of the EC Treaty). Where it is impossible to interpret the national law according to the directive, the taxpayer is allowed to choose between the directive and the national law and apply whichever rule is most favourable.

For further information on this topic please contact Marco G Remiorz at Dabelstein & Passehl by telephone (+49 40 31 77 970) or by fax (+49 40 31 77 97 77) or by email (m.remiorz@da-pa.com).

Endnotes

(1) Then pursuant to Article 17 of the Sixth VAT Directive (77/388/EEC); since 2007 pursuant to Articles 167 and 176 of the System VAT Directive (2006/112/EEC).

(2) April 4 2006 III 105/05, EFG 2006, 1627, DStR 2006, 1367, DStRE 2006, 1097.

(3) Bundesministerium der Finanzen (BMF), BStBl I 2006, 450, DStR 2006, 1372.

(4) Then pursuant to Article 12(H)(6) of the Sixth VAT EU Directive; since 2007 pursuant to Article 98(III)(6) of the System VAT EU Directive.

(5) April 17 2007 3 K 64/06 (publication prepared).