The German Federal Ministry of Finance (BMF) has published a letter clarifying special VAT regulations for local authorities (Gebietskörperschaften). These regulations are outlined in § 18 Abs. 4f and 4g of the Value Added Tax Act (Umsatzsteuergesetz). The BMF has also made changes to the VAT Application Decree (Umsatzsteuer-Anwendungserlass).
The letter provides information on the decentralized VAT taxation of organizational units within the federal and state authorities (Bund and Länder). If these organizational units meet the criteria for VAT declaration obligations, they assume all the tax rights and obligations of the respective local authority for VAT purposes. The BMF explains the concept of organizational units and how they are formed.
To avoid coordination and monitoring burdens for taxpayers and tax authorities, certain threshold amounts are considered exceeded when applying the decentralized taxation procedure for organizational units (§ 18 Abs. 4f Sentence 6 UStG). The BMF clarifies that proof to the contrary is not permissible, and the enumeration in the provision is exhaustive. Any unmentioned company-specific threshold amounts must be evaluated for the entire local authority.According to § 18 Abs. 4f Sentence 7 UStG, optional rights that affect the entire local authority must be exercised uniformly. However, the BMF considers the application for a general extension of the filing deadline (Dauerfristverlängerung) not to fall under this category, allowing each organizational unit to individually apply for it within its jurisdiction.The local authority may declare that the provisions of § 18 Abs. 4f Sentences 1 to 5 UStG should not apply to them. In such cases, the local authority’s company is subject to taxation under a uniform procedure like any other company.The BMF emphasizes that as a result of the waiver, threshold amounts are no longer automatically considered exceeded. Optional rights that affect the entire local authority must be exercised uniformly, even if the decentralized taxation is not applied.
The letter also provides details on various aspects of the taxation procedure for organizational units, including tax registration, issuance of VAT identification numbers, electronic submission of VAT returns and prepayments, submission of tax declarations, notification of tax assessments, offsetting or set-off, representation and legal capacity of the organizational unit, assessment period, and the scope of external audits.Additionally, the tax administration clarifies several other aspects such as declaration obligations when multiple organizational units participate in a transaction, the recipient of services as the VAT debtor (§ 13b UStG), intra-community supplies, intra-community acquisitions, intra-market control procedures, invoice requirements, and § 14c UStG.
A separate BMF letter addressing input tax deduction for nonprofit organizations engaged in business activities (juristische Personen des öffentlichen Rechts) is announced.There are also special provisions in § 18 Abs. 4g UStG concerning the determination of local jurisdiction for taxation of these organizational units, deviating from the provisions of the Tax Code (Abgabenordnung), which the BMF explains in detail.Source: BMF, letter dated May 22, 2023, III C 2 – S 7107/19/10002:004