Germany: Lease of operating equipment ancillary to VAT-exempt lease of property, other VAT developments

Recent VAT developments that may affect businesses in Germany

Recent VAT developments that may affect businesses in Germany

Following a submission from the German Federal Tax Court (BFH), the Court of Justice of the European Union (CJEU) held that a lease of operating equipment is not subject to value added tax (VAT) under the EU VAT directive if the lease is ancillary to a VAT-exempt lease of property.


The taxpayer leased a rearing shed and permanently fixed equipment in the shed under a single rental contract.

Under Art. 135 (2) sent. 1 (c) of the EU VAT Directive, a lease of permanently fixed equipment (i.e., operating equipment in line with section 4 no. 12 sent. 2 German VAT law) is subject to VAT.

However, the CJEU held that when there is a single economic supply consisting of a principal supply that is exempt from VAT under Art. 135 (1) (I) of the EU VAT Directive (i.e., a lease of immovable property), and an ancillary supply inseparable from the principal supply, the ancillary service must be treated in the same way as the principal supply. The CJEU directed the BFH to determine whether the taxpayer’s lease of the permanently fixed equipment was ancillary to its lease of the rearing shed.

KPMG observation

It remains to be seen how the BFH will implement the CJEU ruling, and whether and to what extent the tax authorities may adapt their explanations to these new rulings in a BMF letter, possibly with a corresponding non-objection provision, or in the German VAT Application Decree (UStAE).

Read a May 2023 report [PDF 516 KB] prepared by the KPMG member firm in Germany

Other recent VAT developments that may affect businesses in Germany include the following items:

  • Charging of electric vehicles as a single complex supply (CJEU, ruling of 20 April 2023, C-282/22)
  • Illegally used electricity subject to VAT (CJEU, ruling of 27 April 2023, case C-677/21)
  • No supply of goods for decentralized consumption of electricity (BFH, ruling of 29 November 2022, XI R 18/21)
  • Reduction of VAT rate for foodstuffs used as advertising materials (BFH, ruling of 23 February 2023, V R 38/21)


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