Calculating the deductible proportion of VAT for mixed-use buildings based on the ratio between the area of the premises allowing for VAT deduction and that of the premises not allowing for VAT deduction is compatible with EU law. This is the main thrust of a decision by the German Federal Tax Court. What is more interesting, however, are the further comments regarding input VAT deduction. The Federal Tax Court interprets the rule regarding the determination of the proportion of input VAT deduction in such a way that the allocation of input VAT according to economic criteria will only apply to those VAT amounts that are subject to adjustment of input VAT deduction as referred to in Art. 184 – 192 Directive 2006/112/EC.
With its decision of 21 August 2013, the German Federal Tax Court resubmitted to the ECJ the question of when an organization can be defined as “being devoted to social wellbeing”. This question is particularly relevant for the purpose of determining tax exemption for services which are provided in the context of care and nursing.
By judgment of 22 August 2013 (V R 37/10), the Federal Fiscal Court decided that the reverse-charge-scheme for construction work in relation to immovable property according to sec. 13b of the German VAT Act in principle is no longer applicable for supplies to property developers. However, the decision of the Federal Fiscal Court is not only of importance to property developers. It has put the tax authorities in their place as it has dismissed various regulations by the tax authorities due to the breach of the principle of legal certainty. This decision also has an effect on other areas as the general simplification rules according to sec. 13b of the German Administrative Circular no longer provide certainty and the 10% hurdle for the qualification as a reseller of power and gas may become invalid.
By circular of 28 October 2013, the Federal Ministry of Finance gives up its former view on the VAT exemption of advisory services for investment management companies and follows the recent decisions of the European Court of Justice and the German Federal Fiscal Court. Furthermore, it gives the taxpayers helpful guidance on the application of the tax exemption pursuant to sec. 4 no. 8 lit. h German VAT Act.
On 30 June 2013 changes regarding statements on invoices became effective. The Federal Ministry of Finance issued a circular regarding these changes on 25 October 2013. In particular, with regard to self-billing invoices (“Gutschrift”), the circular offers relief from a practical point of view. It was clarified that some other documents, such as invoice corrections, could be termed “Gutschrift”. Furthermore, the circular contains a “non-objection provision” regarding invoices issued by 31 December 2013.
In its circular of 23 October 2013, the Federal Ministry of Finance made statements regarding the effectiveness of VAT clauses in contracts for the purchase of immovable property. According to this circular, only unconditional clauses retroact to the time the contract was concluded.
The German Federal Fiscal Court passed its judgment (XI R 4/11) regarding VAT deduction for players‘ agent commissions on 28 August 2013. The key question is whether the players’ agents render services to the soccer club. The German Federal Fiscal Court considers an exchange of services to be given only in exceptional cases. The German Federal Fiscal Court could not determine whether such an exchange of services did occur in this particular legal case. The German Federal Fiscal Court has remitted this case back to the tax court of first instance.
Within the EU two different interpretations of the special scheme for travel agents exist, the traveler-based approach and the customer-based approach. In cross-border transactions this could result in double-taxation or non-taxation. In its decisions of 26 September 2013, the ECJ came to the conclusion that the EC-VAT-Directive must be interpreted uniformly by following the customer-based approach. Consequently, the national regulations following the traveler-based approach, like Art. 25 of the German VAT Act, have to be put to the test.
Currently, the fight against VAT fraud is on everyone’s mind. The EC-Directive on the Quick Reaction Mechanism as well as the EC-Directive on the optional application of the reverse-charge mechanism became effective on 15 September 2013. Furthermore, according to a recent study, 2011 VAT losses amounted to approximately 193 billion euro. Hence, it is not surprising that the EU member states are, in addition to VAT rate changes, focusing their attention on measures to fight tax fraud.
On May 2013, the XI. Senate of the German Federal Fiscal Court passed its latest judgment regarding chain transactions. It is the subsequent decision to the ECJ’s judgment regarding the legal case VSTR (judgment of 27 September 2012 – C-587/10). The key question is about determining to which of the supplies the transport should be ascribed if the middle entrepreneur transports or dispatches the goods. The XI. Senate rejects the jurisdiction of the V. Senate and its assignment criterion. From the XI. Senate’s perspective, the German VAT administrative guidelines contradict the ECJ’s jurisdiction.