Tax court: Law should support non-profit co-operations

A planned cooperation between non-profit, tax-privileged corporations does not require a provision in the articles of association of the corporation receiving the benefit. In its ruling of 26 September 2023, the Hamburg Fiscal Court (case no.: 5 K 11/23, BeckRS 2023, 31187) confirmed this view, which was already prevalent in the literature. According to the tax court, such a double statutory requirement cannot be derived from the wording of the standard or from any other interpretation.

Section 57 para. 3 AO, which was newly introduced with the Annual Tax Act 2020, regulates the planned cooperation between tax-privileged corporations in accordance with charitable law. It states: "A corporation also pursues its tax-privileged purposes directly within the meaning of paragraph 1 sentence 1 if it realises a tax-privileged purpose in accordance with its articles of association through planned cooperation with at least one other corporation that also fulfils the requirements of Sections 51 to 68."

In the opinion of the tax authorities, this requires corresponding regulations in the articles of association of the co-operation partners. Accordingly, the Application Decree to the Fiscal Code (AEAO) No. 8 to Section 57 AO explains: "The cooperation with other corporations to realise its own tax-privileged statutory purpose must be set out in the articles of association as a way of realising the purpose. The corporate bodies with which the co-operation takes place and the manner of the co-operation must be specified in the articles of association of the parties involved."

In practice, this therefore requires corresponding amendments to the articles of association, which makes many co-operations at least more difficult, if not impossible.

The judgement of the tax court contradicts this. There is no double statutory requirement. It follows neither from the wording itself nor from the meaning and purpose of the legal system.  

The court also refers to the word "in accordance with the articles of association" in the aforementioned Section 57 para. 3 sentence 1 AO. Due to its position in the sentence alone, this refers only to the articles of association of the corporation providing the service. The articles of association of the corporation receiving the benefit are therefore irrelevant. The wording merely requires these to fulfil the requirements of Sections 51 to 68 AO.  

Furthermore, the purpose of the law is to reduce bureaucracy in voluntary work. Cooperation based on the division of labour in a charitable context should be made possible and easier. It would contradict this if every cooperation required changes to the articles of association and thus, among other things, notary costs and registration by the registry court.  

As a result, this means that there is now at least an initial case law that confirms the interpretation of the law, namely that co-operations, as well as services and functional services, must be anchored solely in the articles of association of the body providing the service.Any other interpretation appears to be contrary to the system and grammatically far-fetched.

Although the opinion of the tax court is convincing, the application decree to the German Fiscal Code is currently unchanged and the tax authorities continue to be bound by the double statute requirement within the administration - at least for the time being.

The appeal to the Federal Fiscal Court is pending (BFH - V R 22/23). Only the outcome of these proceedings will conclusively clarify the question of the double statute requirement.

Our experts will be happy to advise you on all questions relating to non-profit law and co-operations and, in particular, on questions relating to the drafting of articles of association.