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The reduction of the VAT rate does not only make rail travel more affordable. Transport by horse-drawn carriage on a car-free North Sea island may also qualify as preferential taxi service, as the BFH ruled in its judgment of 13 November 2019. The prerequisite, however, is that motor vehicle traffic is generally prohibited within the municipality and that the remaining characteristics of taxi service are present in a comparable form.
The claimant transports passengers by horse-drawn carriage on a car-free North Sea island. She seeks the reduced VAT rate for taxi services under § 12 (2) Nr. 10 UStG for "taxi rides" at fixed, publicly known fares, but not for island sightseeing or excursion tours. The tax office and the fiscal court rejected this. They held that the tax-privileged taxi service refers to transport by motor vehicle within the meaning of the German Passenger Transport Act (Personenbeförderungsgesetz), which was not the case here. The BFH, by contrast, set aside the lower court's judgment and remanded the case.
According to the BFH ruling, § 12 (2) Nr. 10 UStG is generally based on the assumption that motor vehicle traffic is permitted within municipalities. Where this is not the case, it cannot be inferred from the concept of taxi service that there is no tax-privileged passenger transport in those municipalities. Rather, the decisive question is whether alternative non-motorised forms of transport exist that correspond to the tax-privileged taxi service under the Passenger Transport Act, to the exclusion of non-privileged car hire services.
In the second round of proceedings, the fiscal court must make further findings regarding the traffic regulations applicable on the island and the question of the extent to which the services rendered by the claimant using horse-drawn carriages, taking into account the different modes of transport, can be regarded as comparable to taxi service operating without motor vehicles.
Frequently asked questions
Frequently asked questions
Can passenger transport by horse-drawn carriage qualify for the reduced VAT rate?
Yes. In its ruling of 13 November 2019, the BFH held that transport by horse-drawn carriage may qualify as tax-privileged taxi service under § 12 Abs. 2 Nr. 10 UStG. The prerequisite is that motor vehicle traffic is generally prohibited within the municipal area and that the other characteristics of a taxi service are met in a comparable manner.
What requirements must non-motorized transport meet to qualify for the reduced VAT rate?
The alternative non-motorized form of transport must be equivalent to tax-privileged taxi services under the German Passenger Transport Act (Personenbeförderungsgesetz). This includes, for example, fixed and publicly known tariffs and a clear distinction from non-privileged rental car services. Pure sightseeing or excursion trips do not qualify.
Why did the tax office and tax court initially reject the reduced tax rate?
They argued that the preferential treatment of taxi services under § 12 Abs. 2 Nr. 10 UStG was tied to passenger transport by motor vehicle within the meaning of the German Passenger Transport Act. Since horse-drawn carriages are not motor vehicles, this requirement was not met. The BFH rejected this narrow interpretation.
How is Section 12 (2) No. 10 UStG to be interpreted in car-free municipalities?
The provision is based on the assumption that passenger car traffic is generally permitted within municipalities. Where this is not the case, such as on car-free islands, it must not be concluded that tax-privileged passenger transport is impossible. Instead, comparable non-motorised forms of transport must be taken into account.
What findings must the tax court make in the second round of proceedings?
The tax court must examine the traffic-related restrictions on the island in more detail. It must also assess to what extent the horse-drawn carriage services—taking into account the different types of transport—are comparable to taxi services without cars, and whether the distinction from rental car services is maintained.