1. Background
Numerous property developers who had, in the past, wrongly paid VAT in accordance with sec 13b of the German VAT Act for purchasing supplies of construction work, have now filed claims with the tax office for refunds. To date, there has been a general feeling that interest on the tax refund was also due to the property developer. At the same time, suppliers were required to respectively pay additional VAT for the past. In this regard, they often make use of assignments in accordance with sec 27 para 19 of the German VAT Act.

2. Federal Fiscal Court decision of 27.01.2016 – V B 87/15
The settlement of past cases has, however, stagnated due to a Federal Fiscal Court decision of January 2016. In this case, a supplier was granted a suspension of execution. On the one hand, this was made with reference to the possible unconstitutionality of sec 27 para 19 of the German VAT Act, which excludes legitimate expectations. On the other hand, the Federal Fiscal Court developed a new legal approach. It considered an analogous application of sec 17 para 2 no 1 sentence 1 of the German VAT Act. The court assumed that it seems possible that the VAT amount was uncollectable from the supplier during the relevant years. The uncollectibility possibly being due to the former applicable administrative instruction, which provided for a transfer of the liability for the payment of the VAT to the recipient.

Following this reasoning, the supplier owes the VAT for the supplies rendered to the property developer only in the taxable period in which he collects the VAT amount paid by the property developer. This result must arise from general legal principles – legal certainty, legitimate expectations and good faith. Further, the Federal Fiscal Court pointed out that the result would then also apply to the property developer: He would also be entitled to a refund only at the point in time when he pays the VAT amount to the supplier. Thus, the property developer would not be entitled to receive any interest.

3. Two current judgments of the tax court in Münster
3.1 Tax court in Münster, judgment of 15.03.2016 – 15 K 1553/15 U
By means of its current judgment, the tax court expressly opposes the Federal Fiscal Court’s opinion, according to which sec 17 of the German VAT Act is to be applicable by analogy. The rule’s wording would be exceeded if uncollectibility was assumed, despite the supplier having received his remuneration. According to the tax court, it would also be contrary to its wording if the rule was respectively applied to the property developer. The property developer is not deemed to be a taxable person in terms of the rule nor is he liable for the payment of the VAT. An appeal is currently pending as regards this decision – V R 16/16.

3.2 Tax court in Münster, judgment of 15.03.2016 – 15 K 3669/15 U
In its second judgment, the tax court made some interesting statements regarding sec 27 para 19 of the German VAT Act. The claimant was a supplier who had already paid the additional tax to the tax office. However, he had not issued any corrected invoices. He claimed to assume a declaration of assignment. The tax court derived the assumption of a declaration of assignment from sec 27 para 19 sentence 3 of the German VAT Act. The assignment was allowed although the supplier and the property developer had agreed on a prohibition on assignment. As both of the parties were merchants, an assignment in accordance with sec 354a para 1 of the Commercial Code was, nevertheless, permissible. Whether a claim exists would then have to be clarified by the tax office and the property developer in civil proceedings. The assignment is also not affected by the fact that the supplier had already paid the VAT to the tax office. He could replace his payment by the later assignment. Although, in the tax office’s view, corrected invoices are not required for an assignment, they are of significance as regards the fulfillment of the assignment. An appeal is also pending in this case – V R 24/16.

4. Civil court decisions
The civil courts are increasingly dealing with the question of whether suppliers are entitled to make a civil claim for an additional payment of VAT vis-à-vis the property develop-ers. In its judgment of 05.02.2016 – 33 O 86/15 the regional court in Düsseldorf denied such a claim. In this case, the State filed a lawsuit against the property developer for payment of the assigned VAT amount. As it was contractually settled that the property developer was liable for the payment of the VAT, the regional court denied a supplementary interpretation of the contract. Sec 313 of the German Civil Code was also not applicable. It would not be reasonable for the parties involved to continue the agreement. This would have to be determined after the balancing of interests in the individual case. In the case in question, the property developer claimed a refund prior to sec 27 para 19 of the German VAT Act being enacted by the legislator.
 
5. Conclusion
The Federal Fiscal Court decisions have led to legal uncertainty. A Federal Ministry of Finance letter is expected to be published shortly concerning this matter. Until then, property developers should continue their claims for refund. Suppliers can refer to the Federal Fiscal Court’s decision, as long as they have not collected the VAT from the property developer. They should, at the very least, be granted suspension of execution.

Contact:

Thomas Streit, LL.M. Eur.
Lawyer
Phone: +49 (0) 89 / 2 17 50 12 - 75
thomas.streit@kmlz.de

As per: 30.05.2016