Germany Updates VAT Group Rules and Non-Economic Activity Treatment

The VAT treatment of the controlling entity’s liability and the non-taxable status of intra-group supplies generally remains unchanged after recent CJEU and BFH case law.
However, VAT-group non-taxability now also applies to supplies used for non-economic activities in the strict sense, not just business activities.
Cross-border VAT-group issues and related CJEU judgments will be covered in a separate BMF letter.
Input VAT deduction rules for non-economic activities also apply where a VAT group exists; the UStAE has been updated with examples.
The new rules apply to all open cases, but taxpayers may continue the previous practice until 31 December 2026.

Germany tightens VAT Group rules: BMF narrows protection for Organschaft intra-group VAT exemptions

Germany’s Federal Ministry of Finance (BMF) has updated the VAT treatment of German VAT Groups (Organschaft) through a new letter dated April 1, 2026, amending the VAT Application Decree (UStAE) to reflect recent CJEU and BFH case law.
The new guidance narrows the protection for Organschaft intra-group VAT exemptions, particularly affecting supplies connected to non-economic or non-business activities, which may now trigger VAT consequences and impact VAT recovery and deemed supply rules.
While the revised rules apply immediately to open cases, taxpayers can continue using the previous administrative approach until December 31, 2026, without challenge, but businesses are advised to reassess their intra-group charging models, input VAT recovery, and ERP tax logic.

VAT group