Go Beyond

A change is pending to the VAT treatment of public services that constantly run at a loss. The new Federal Ministry of Finance Circular of 20 January 2026 makes the requirements much stricter on the nature of consideration, business activity and thus also the deductibility of input VAT for operations that constantly run at a loss. In future, public services will have to meet stricter checks, particularly regarding the cost/income ratio and the link to subsidies. The new legal situation implements the decisions of the European Court of Justice (ECJ) and the Federal Tax Court (Bundesfinanzhof – BFH). It compels legal persons under public law (municipalities, cities, local government), but also other private operators outside the public sector, to examine and reorientate the interests they hold under private law (e.g. municipal utilities [Stadtwerke]) in private legal forms, their structures and financing models.