Tax & Legal

Is the supply of services by independent groups of people to their members VAT free without distorting competition? The European Court of Justice has commented on this issue in a request for a preliminary ruling from Spain regarding VAT exemption for municipal cost-sharing schemes. The judgment also has implications for the corresponding German exemption in Section 4 No. 49 of the Value Added Tax Act (VAT Act).

On 2 February 2025, the first prohibition standards of the EU Regulation on the use of artificial intelligence (Regulation (EU) 2024/1689) came into force. The legally compliant use of AI poses major challenges for local communities in particular. At the same time, opportunities for added value through the use of AI should not remain untapped, especially in the smart city sector (where intelligent information and communication technology is used to increase participation and quality of life and to create an economically, ecologically and socially sustainable municipality or region).

According to a decision of the Supreme Tax Court, the provision of spa facilities by a municipality does not constitute a service for consideration if the municipality collects a spa tax (visitor's tax) per day from guests staying in the municipality. However, this only applies if the obligation to pay this tax is not tied to the use of the spa facilities but rather to the stay in the municipal area and if the facilities are accessible to everyone free of charge.

In a recent decision the Supreme Tax Court dealt with the provision of services by public bodies under German VAT law. If the economic activities of a public body are not outstanding and distinct from its overall activities it is not a taxable business for VAT and thus not eligible to deduct input VAT incurred on the underlying costs.