German Tax Update – 8 May 2025
1. Federal Audit Office criticises lack of concrete progress on national e-reporting system
Germany’s Federal Audit Office (Bundesrechnungshof) has sharply criticised the German tax authorities for failing to take tangible steps towards implementing a national electronic transaction reporting system [1]. Although the EU’s "VAT in the Digital Age" (ViDA) initiative targets 2030 for EU-wide adoption, Germany has so far only planned to present a detailed implementation concept by the end of 2026. According to the Bundesrechnungshof, this timeline is far too slow and risks making Germany a weak link in the EU’s joint fraud prevention efforts.
Affected companies: All businesses established or operating in Germany.
Recommended action: Companies should closely monitor the legal and administrative developments related to digital VAT reporting.
A&M Tax contact: Matthias Luther
2. ECJ clarifies VAT treatment of public subsidies for transport services
In a recent ruling, the European Court of Justice found that a public subsidy paid to a transport company was not subject to VAT [2]. The key factor: the payment was not linked to the sale of tickets or individual services rendered to passengers. The decision reinforces that subsidies must be economically connected to the price of a service to be part of the taxable base.
Affected companies: Businesses operating in publicly funded service sectors, especially public transport providers.
Recommended action: Assess existing subsidy arrangements to determine whether they are economically tied to specific services and consider VAT implications accordingly.
A&M Tax contact: Matthias Luther
3. German Federal Fiscal Court provides legal certainty for the determination of profits for PEs
The German Federal Fiscal Court (BFH) has ruled that Section 1(5) of the Foreign Tax Act (AStG) is a pure income adjustment rule and is not to be regarded as an autonomous regulation for the determination of profits of a permanent establishment (PE) [3]. In this case, the tax authorities applied the cost-plus method without adequately justifying its use. The court underlined that profit allocation must reflect the PE’s actual functions, assets and risks.
Affected companies: Foreign businesses with permanent establishments in Germany.
Recommended action: Review transfer pricing policies for PEs to ensure profit allocation is based on economic substance and complies with German standards.
A&M Tax contact: Cheng Qiu
[1] Nummer 29 Umsatzsteuerbetrugsbekämpfung zweiter Klasse droht https://www.bundesrechnungshof.de/SharedDocs/Downloads/DE/Berichte/2025/ergaenzungsband-2024/29-volltext.pdf?__blob=publicationFile&v=3
[2] European Court of Justice, judgment of 8 May 2025 – case C-405/24 – L, ECLI:EU:C:2025:335, https://curia.europa.eu/juris/document/document.jsf?text=&docid=299089&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=77359
[3] German Federal Fiscal Court, judgment of 18 December 2024 – case I R 45/22, https://www.bundesfinanzhof.de/de/entscheidung/entscheidungen-online/detail/STRE202520121/
