Background:
The Finanzgericht Berlin-Brandenburg (Az. 5 V 5144/15) ruled that driving school instruction is generally exempt from VAT (this also includes instruction for classes A and B).
Recommended approach in practice for invoicing:
Since a decision by the BFH (highest court) is still pending, we have considered how to proceed. If you, as a driving school, treat your services as VAT-exempt, there is a risk that you will have to pay the VAT subsequently (should the BFH confirm that the services are subject to VAT), plus interest of 6% per year. We therefore generally advise against this approach.
One option (which should absolutely be discussed with us or your Steuerberater (German Certified Tax Advisor) on a case-by-case basis) would be to issue invoices without showing VAT (because if the BFH rules that the services are VAT-exempt, no corrections will be needed — whereas if VAT has been shown on the invoice, you also owe that VAT and would have to correct every invoice in such a case), but, as a precaution, still declare and remit the VAT to the tax office. This way, if the services ultimately remain taxable, you will not have to pay anything additionally. If they are treated as VAT-exempt, you will receive the VAT paid (plus 6% interest on refunds) back.
Please feel free to contact us regarding this matter.
Frequently asked questions
Frequently asked questions
Is driving school instruction exempt from VAT?
The Berlin-Brandenburg Tax Court (Az. 5 V 5144/15) ruled that driving school instruction – including classes A and B – can generally be VAT-exempt. However, a final decision by the BFH is still pending, so the legal situation is currently uncertain.
What risk arises if driving schools provisionally treat their services as VAT-exempt?
If the BFH confirms the VAT liability, the VAT must be paid retroactively. In addition, late-payment interest of 6% per year is charged. A purely VAT-exempt treatment without safeguards is therefore not recommended.
How should driving schools issue their invoices while the legal situation remains unresolved?
We recommend issuing invoices without separately stated VAT. If VAT is shown openly, the driving school owes it even if the service is later classified as tax-exempt – and all invoices would then have to be corrected. The specific approach should, however, be discussed with the Steuerberater (German Certified Tax Advisor) on a case-by-case basis.
Should VAT be paid to the tax office even if it is not shown on the invoice?
Yes, as a precaution, VAT should be declared and paid. If the services remain subject to VAT, no back payments will arise. If the services are ultimately classified as VAT-exempt, the driving school will receive the VAT paid back, plus 6% interest on the refund.
What happens if VAT is shown on the invoice but the service is later deemed tax-exempt?
In this case, the driving school still owes the VAT shown on the invoice pursuant to Section 14c UStG. To avoid paying the tax, all affected invoices issued to customers would have to be corrected, which involves considerable administrative effort.