BMF adopts position of ECJ and BFH
With the new BMF circular dated April 1, 2026, the German tax authorities are consistently implementing the case law of the ECJ and BFH regarding the non-taxability of intra-group transactions within a German tax group (Organschaft). For nonprofit organizations, this brings significant relief, particularly with regard to services related to non-economic activities. The amended provisions in the VAT Application Decree (Umsatzsteueranwendungserlass; UStAE) provide legal certainty.
Value-added tax and tax group in German nonprofit law
VAT grouping plays a central role in the day-to-day operations of nonprofit organizations, foundations, charitable LLCs, and social welfare organizations in Germany. It results in legally independent companies being treated as a single entity for VAT purposes, meaning that services provided within the tax group are generally not subject to VAT. This is of particular significance in the nonprofit sector because personnel, administrative, or IT services are often provided internally within the group, while the parent company also carries out non-economic activities in the strict sense, such as the charitable work of an association or public-law tasks.
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For a long time, it was disputed whether such internal services become taxable if they ultimately do not serve the business sector. The tax authorities had previously taken a restrictive view on this matter. However, the relevant ECJ rulings from 2022 and 2024, as well as the Federal Fiscal Court (BFH) ruling of August 29, 2024, have fundamentally corrected this view.
BMF letter 2026 and VAT application decree implement BFH case law
With the recently published letter from the Federal Ministry of Finance dated April 1, 2026, the tax authorities explicitly adopt the position of the ECJ and the BFH. It is clarified that services provided for consideration and without consideration between a controlling entity and a controlled entity are not taxable even if they are used for non-economic activities in the strict sense. The sole decisive factor is the existence of the tax group; the BFH expressly rejects the notion of “partial independence” of the controlled entity.
VAT risk for NPOs eliminated
These principles are now reflected in the new paragraphs 3a through 3c of Section 2.8 of the VAT Application Decree. Of particular practical relevance is the fact that the BMF simultaneously clarifies that no supply of goods or services for consideration occurs in these cases. This eliminates a significant VAT risk for many nonprofit organizations that previously existed, for example, in the case of intra-group personnel provision for charitable activities. At the same time, however, the tax authorities also make clear that an input tax deduction for input services is excluded to the extent that these services are attributable to non-economic activities.
A clear example: A charitable LLC, as a subsidiary, provides personnel for the charitable work of its association, which acts as the parent company. Under the old administrative interpretation, this risked being taxed as a gratuitous transfer of value. Under the new legal situation, this constitutes a non-taxable internal service that does not trigger VAT but also does not allow for input tax deduction.
VAT grouping even for non-economic activities
The new BMF letter finally provides long-awaited legal certainty for nonprofit organizations, social enterprises, and foundations in Germany. The tax authorities now expressly acknowledge that VAT grouping applies in full even for non-economic activities. In practice, this means fewer VAT pitfalls, but at the same time an increased need for a clear distinction between business operations, asset management, and charitable sphere.
Practical tip for NPOs in Germany: review tax group structures
Our practical tip is therefore: We recommend systematically reviewing existing tax group structures and internal service allocations now, paying particular attention to input tax allocation and potential adjustments under Section 15a of the German Value-Added Tax Act. Especially in nonprofit law, a coordinated consideration of VAT, the drafting of articles of association, and actual management is essential.
Does your organization have tax group relationships between an association, a foundation, a charitable LLC, or even with commercial companies? Are intra-group services also used for nonprofit or public-sector activities? And is the input tax allocation still compatible with the new administrative interpretation? Our NPO team is happy to provide you with personalized advice on these and all other questions regarding VAT and charitable status. Please contact us!
