KPMG Germany Webpage
Click on the above link to visit the KPMG Germany webpage on the Mondaq website
For disclaimer and copyright see end of this article.
The tax base to which the applicable VAT rate (currently 16 % general rate; 7 % on certain supplies) is applied to calculate VAT is normally the price charged (net of VAT) for the taxable goods or services supplied. Under sec. 10 (5) UStG, the cost incurred by an entrepreneur in making a taxable supply constitutes an alternative minimum tax base for supplies to certain related persons, as defined in sec. 10 (5) UStG. The provision is intended to prevent entrepreneurs from delivering goods or rendering services to related persons at bargain prices and thereby reducing the VAT normally payable on the transaction. Authorisation for the provision is found in Article 11 Part A (1) (a) of the 6th VAT Directive.
Ruling on a case referred to it by the German Federal Tax Court, the European Court of Justice has now held that the alternative minimum tax base cannot be applied to transactions with related persons if a market price was charged by the entrepreneur with respect to the supply (ECJ BB 1997, 1934 - 29 May 1997). The case involved rental of residential property at a market price according to local rental statistics. This price was, however, under the alternative minimum tax base. The ECJ stated that the alternative minimum tax base as authorised by the 6th Directive was intended solely to prevent abuse. Reasoning that abuse cannot occur if a market price is charged, the ECJ ruled that the German alternative minimum tax base cannot apply to such situations.
The Federal Tax Court has since applied the ECJ's holding to the case before it (UR 1998, 147 - 8 Oct. 1997). Consequently, sec. 10 (5) UStG is to be interpreted as not applicable to situations in which a market price (marktuebliches Entgelt) has been charged.
Disclaimer and Copyright
This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. We in particular insist that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Please note the date of each article and that subsequent related developments are not necessarily reported on in later articles. Any claims nevertheless raised on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.