AG: German charity service firms keep direct-tax break, not VAT cut

Advocate General Athanasios Rantos has advised the Court of Justice that Germany's 2020 extension of charity tax privileges to planned-cooperation service companiesEuropa is not State aid where it exempts them from corporation and trade taxEuropa, but can be State aid where it gives them the 7% reduced VAT rateEuropa — and that any aid finding would make the extension notifiable new aidEuropa. The Opinion of 15 October 2026 in Case C-477/25Europa (Finanzamt X v Servicekörperschaft)Europa answers three questions from Germany's Bundesfinanzhof about Articles 107(1) and 108(3) TFEUEuropa.

The dispute concerns a company formed in 2022 to supply financial-management and accounting services for payment to a recognised non-profit foundation under planned cooperation. Its statutes pursue public-benefit objects mirroring the foundation's, though the foundation's own statutes do not mention the cooperation. The tax office first accepted then rejected its non-profit status claim; the Finanzgericht sided with the company, and the tax office appealed on a point of law.

Since 2020, Article 57(3) of the Fiscal Code treats a body as directly pursuing its privileged object where it does so through planned cooperation with a qualifying body. The privileges predate the EEC Treaty: corporation-tax and trade-tax exemption plus the 7% VAT rate for supplies of bodies exclusively and directly pursuing privileged objects.

For the two direct taxes, the Opinion applies the three-step selectivity test against uniform business-profits taxation. The exemption prima facie departs from that framework — the profits are indistinguishable as profits — but at the second step the service companies are not in a comparable situation to ordinary businessesEuropa: fund-use restrictions and the asset lock-in shape their economics much as cooperative principles did in Paint Graphos (C-78/08 to C-80/08), distinguishing them even where their services objectively compete. No selective advantage, hence no State aid here, subject to the referring court's verificationEuropa.

The reduced VAT rate flipsEuropa because VAT is harmonised: the framework is national law read with the VAT Directive, whose Article 98 allows reduced rates only for the exhaustive Annex III listEuropa. Point 15 covers bodies recognised as social and engaged in welfare work — a derogation read strictly. A service company is not so engaged merely by serving a non-profit customer with indistinguishable servicesEuropa, and the national scope stretches into science, culture and heritage. The rate treats comparable operators differentlyEuropa and, with no justification compatible with the DirectiveEuropa, confers a selective advantageEuropa — capable of being State aid if the other Article 107(1) conditions holdEuropa.

On new versus existing aid, the 1953 advantage for non-profit operations predates 1 January 1958, but the unnotified 2020 measure widened the beneficiary circle by changing the identifying criteriaEuropa — more than formal change under Regulation (EU) 2015/1589 and Regulation (EC) No 794/2004Europa, confirmed in Dilly's Wellnesshotel (C-585/17). To the extent the advantages are State aid, the extension is new aid subject to prior notification under Article 108(3) TFEUEuropa. The Court itself has yet to rule. Legal basis: Articles 107(1) and 108(3) TFEU, Articles 96 and 98 of Directive 2006/112/EC with point 15 of Annex III, and Regulation (EU) 2015/1589.