VAT Treatment of Persistently Loss-Making Institutions Receiving Public Grants

• Facilities that are permanently operated at a deficit and receive public subsidies are subject to specific VAT (Umsatzsteuer) treatment.
• The right to deduct input VAT (Vorsteuerabzug) is often disputed and has been addressed by the European Court of Justice (EuGH) and the Federal Fiscal Court (BFH).
• If there is no real exchange of service for payment (e.g., only symbolic prices), no taxable transaction occurs, and input VAT deduction is not allowed.
• All circumstances of the service provision must be considered to determine if a taxable economic activity exists.
• An asymmetry between costs incurred and payments received can indicate the absence of a taxable transaction, thus excluding input VAT deduction.

Source: bundesfinanzministerium.de

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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