BDO Analyzes Tax Ruling on Apportioning Total Fees with Different Tax Rates

The German Federal Fiscal Court (BFH) issued a ruling on January 22, 2025 (Az. XI R 19/23) that addresses the apportionment of total prices for combined offers subject to different value-added tax (VAT) rates. This decision is particularly relevant for businesses combining goods or services taxed at different rates, such as restaurants offering meals with beverages.

The general principle requires the total price to be broken down based on the individual sales prices of the items. However, this can be complex in practice. The case involved fast-food restaurants selling value menus as a combined offer. These businesses had allocated the total price based on the cost of goods (the 'Food-and-Paper' method), which resulted in a lower VAT liability than an apportionment based on individual sales prices. Businesses argued this was permissible as they could structure their activities tax-efficiently.

The BFH, however, rejected the 'Food-and-Paper' method in this specific instance. The court determined that the method did not align with the economic and business reality. For system gastronomy companies, the sales price of a burger within a discounted menu could be higher than its standalone price, which the BFH found to be economically illogical. Furthermore, the method was not sufficiently robust to changes in procurement costs, considering that new inventory typically entered circulation a week after purchase.

In a parallel case (January 22, 2025, Az. XI R 22/22), a company attempted to mitigate the adverse effects of the 'Food-and-Paper' method by implementing a cap on the calculation of the VAT base. The BFH ruled that this corrective measure indicated a deviation from the proper method and that the modified approach, by relying on individual sales prices for the capping calculation, did not systematically yield objective results.

BDO notes that while the ruling focused on the fast-food sector, the principles established for apportioning prices and VAT are likely applicable to other industries facing similar combined sales and discounted offers. The assessment must always consider the prevailing economic and business realities, a criterion fundamental to EU court jurisprudence.