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According to a decision of the Federal Court of Justice, the right to deduct VAT arises at the time the taxable supply is carried out. As a consequence, the right to deduct VAT does not cease to apply retroactively if the taxable person purchases goods “in good faith“ and only afterwards realizes that these transactions were part of a VAT fraud carousel. There is also no obligation to correct the submitted VAT returns in this case. The Federal Court of Justice’s decision increases legal certainty for taxable persons and consultants (decision of the Federal Court of Justice of 1 October 2013, 1 StR 312/13, see also decision of the Federal Court of Justice of 5 February 2013, 1 StR 422/13).
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The tax authorities follow the Federal Fiscal Court’s jurisdiction by means of a circular of the Federal Ministry of Finance. Significant VAT refunds incl. interest, for wrongly paid past VAT, are in store for property developers. Due to the clear and direct assignment of the input transactions, furthermore, the circular of the Federal Ministry of Finance has far-reaching consequences: Companies may now become liable for VAT when purchasing construction work although they have, to date, not fallen within the scope of sec. 13b of the German VAT Act.
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A taxable person is only entitled to an input VAT deduction with regard to goods and services purchased for business purposes. In its notification dated 2 January 2014, the Federal Ministry of Finance stipulates the general allocation principles to the business. In particular, with regard to construction work, the allocation to the business has to be executed by 31 May of the following year. Otherwise, there is a risk that the input VAT cannot be deducted.
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