German Federal Fiscal Court Tightens VAT and Profit Transfer Tax Rules

The German Federal Fiscal Court (Bundesfinanzhof) issued two recent rulings that modify tax treatment for businesses. In a decision dated 24 October 2013, the court clarified that entrepreneurs subject to accrual accounting may treat remuneration as uncollectible for VAT purposes when a contractual retention is used to secure warranty claims for two to five years and the claim cannot be realized. The exemption does not apply if a bank guarantee covers the warranty, and the entrepreneur must provide clear evidence of each rejected guarantee request.

A later ruling on 5 November 2025 tightened the requirements for profit‑transfer arrangements (Organschaft) within corporate groups. The court ruled that the profit‑transfer obligation must be fulfilled within twelve months after it becomes due; merely recording the amount on a clearing account is insufficient. Late fulfillment, even after the group relationship ends, results in denial of the Organschaft status for the affected years, compelling groups to ensure timely cash payments or documented settlements.