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In section 13c of the VAT Act [Umsatzsteuergesetz–UStG], VAT law sets out liability when claims are assigned, pledged or seized. When the assignment or pledge is made to a non-taxpayer or seized by a non-taxpayer, the administrative authorities expressly considered until now that there was no liability under section 13c. Non-taxpayers include bodies governed by public law if they do not carry on any economic operations as defined by section 2(3). But by applying section 2b, changes occur that affect bodies governed by public law. The Federal Ministry of Finance (BMF) has now commented on these changes in a new Circular.

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.