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Tax Grouping and Partnership Exclusion Clarified

Judgment of March 16, 2023, VR 14/21 (VR 45/19)


In a recent judgment, the Finance Court (FG) ruled on the issue of VAT grouping and liability in an insolvency case involving A-GmbH & Co. KG (KG). The insolvency administrator of KG, referred to as the plaintiff, sought clarification on the existence of a fiscal structure between the controlling company and the controlled company. The tax office (FA) rejected the plaintiff’s request, stating that a partnership cannot be included in a VAT group. However, the FG upheld the lawsuit, stating that all integration requirements were met and that the exclusion of the tax group when a second shareholder is present does not prevent abuse or tax avoidance. The FA has objected to the ruling and is pursuing a revision. The case raises important questions about VAT grouping and the principle of good faith.


The FA’s revision is justified. The FG’s judgment is to be revoked and the matter referred back to the FG. The FG correctly determined that there is a tax group under the Sales Tax Act in the event of a dispute due to changed case law. However, it did not consider that a change in favor of the KG requires an application for a change in tax assessment by the controlling company. Further determinations must be made in a second legal action.

The FG correctly decided that the KG can be a controlled company in a controlled group under the Sales Tax Act. According to the overall picture of the actual circumstances, a legal entity is financially, economically, and organizationally integrated into the company of the controlling company. The KG in this case meets these criteria as it is financially integrated through majority voting rights, economically integrated through leasing key assets, and organizationally integrated through sole management and representation. The ECJ judgment supports this interpretation.

The KG is considered a controlled company despite its capitalist structure, as confirmed by BFH case law and the ECJ ruling on the Berlin Finance Office. The presence of individuals not financially integrated into the controlling company’s company does not affect this classification.

However, the FG’s judgment must be overturned because if a KG claims to be a controlled company due to changed case law, the controlling company must submit an application to change the existing tax assessment. This requirement is based on the principle of good faith in tax law, which aims to avoid contradictory behavior.

Source Bundesfinanzhof

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