Germany: Transfer of water supply systems by municipality treated as transfer of going concern for VAT purposes

The Federal Tax Court (BFH) on September 25, 2024, held (XI R 19/22) that the construction of water supply systems for a municipality on third-party land was considered a “supply” of services for value added tax (VAT) purposes, but the municipality could be considered an “entrepreneur” for purposes of treating the municipality’s transfer of the water supply systems to a third-party as a non-taxable transfer of a going concern. The BFH further held that, in any event, it was only necessary to show that the acquirer of the water supply systems qualified as an entrepreneur for the transactions to be treated as a non-taxable transfer of a going concern.

Read a December 2024/January 2025 report prepared by the KPMG member firm in Germany

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

• The BFH opined on the correction of a shift in sales over the course of the year (August 29, 2024 decision – V R 19/22).
• The BFH held that payments made by a controlled company to the controlling company in an Organschaft were not taxable, and the non-taxability did not lead to withdrawal taxation (August 29, 2024 decision – V R 14/24).
• The BFH held that a group practice that acts externally in pursuit of a common purpose is an entrepreneur for VAT purposes (September 4, 2024 decision – XI R 37/21).
• The Federal Ministry of Finance (BMF) issued guidance regarding input VAT deduction for credit institutions (December 9, 2024 letter - III C 2 - S 7306/19/10003 :004).