The VAT liability of public-law entities under section 13c of the German VAT Act

Previous rule

Section 13c governs liability in cases in which a supplier (tax debtor) assigns its claim to the consideration from a taxable sale (claim for payment), the assignee collects the claim or transfers it to a third party, and the tax debtor does not pay the VAT included in the claim, or does not pay it on time, when it becomes due. This rule on liability also includes cases in which the supplier’s claims for payment are pledged or seized.

If the claim is assigned or pledged to a non-taxpayer or seized by a non-taxpayer, until now no liability under section 13c was considered. Bodies governed by public law also counted as non-taxpayers if they did not carry on any economic activities (see section 2(3) of the VAT Act).

Applying section 2b

Bodies governed by public law were originally only considered taxpayers within the scope of their economic activities. In contrast to this, section 2b of the VAT Act, which has already applied since 2017, stipulated that bodies governed by public law are as a rule considered taxable persons for VAT in total if they carry on an activity they are not obliged to as a public authority and in which to a large extent they compete with third parties that pay VAT.

However, the transitional rules created for this (subsections (22) and (22a) of section 27 of the VAT Act) allowed the old legal position to continue to be applied for supplies provided before 1 January 2027. Many bodies governed by public law are therefore only expected to come completely under the new rules of section 2b from 1 January 2027.

In applying section 2b to a body governed by public law that carries on economic activities, this body may become liable under section 13c if the claim to payment is assigned, pledged or seized for the economic or non-economic part of the entity (13c.1(9) sentences 3 and 4 of the VAT Application Decree).

The Federal Ministry of Finance’s new practice

In light of this, the Federal Ministry of Finance has modified its guidance on the liability of bodies governed by public law to match the change in the legal position when claims for payment are assigned, attached or seized. It has clarified that public law entities may also come under the liability rules of section 13c.

Until now the rule was that assignees, pledgees or judgement creditors must be taxpayers as defined by section 2 and that public law entities can only be included if they carried on economic operations.

Conclusion: New liability rules for bodies governed by public law under section 2b of the VAT Act

In a Circular on 30 April 2026 the Federal Ministry of Finance has now expressly clarified that public law entities that carry on economic activity to which section 2b applies may come under the liability rules of section 13c.   

As soon as a public law entity has an economic sphere, the liability rules apply in full – even if the assigning, pledging or seizing of a claim for payment is to be attributed to the non-economic sphere. This is given by the reference to the rule contained in sentences 2 to 4 of 13c.1(7) of the VAT Application Decree [UStAE] explicitly included by the Federal Ministry of Finance.

This expressly states that it is not a precondition for liability under section 13c that the claim for payment is assigned, pledged or seized for the economic sphere of the assignee, pledgee or judgement creditor. If a public law entity seizes a claim for payment for its non-economic sphere, a claim may still be made against it (applying section 2c) as a liable debtor under section 13c.