The Supreme Tax Court follows the ECJ decision in the Faxworld case and allows a civil law partnership, that was formed to set up a company, to deduct input VAT
Faxworld Vorgründungsgesellschaft Peter Hünninghausen und Wolfgang Klein GbR ('Faxworld GbR') was set up on 1 October 1996 for the sole purpose of preparing for the establishment of Faxworld Telefonmarketing AG ('Faxworld AG'). To that end, it rented and equipped office premises, acquired fixed assets, sent introductory mailshots and engaged in advertising for the future AG. Once Faxworld AG was formed by notarial deed on 28 November 1996, Faxworld GbR ceased its activities and, in performance of its object, transferred all previously acquired assets to the AG for consideration on 1 December 1996. Faxworld AG was immediately able to take up its commercial activities in the office premises which had been rented, equipped and furnished by Faxworld GbR.
Faxworld GbR subsequently sought to deduct the input tax incurred on the supplies it had acquired and transferred. The tax authority refused the deduction on the ground that the claimant's only output transaction was a transfer of a business, which is not to be treated as a taxable transaction, and that Faxworld GbR was therefore not a trader (taxable person). Faxworld GbR challenged that refusal before the competent tax court, which allowed its claim on the basis of the principle of the neutrality of VAT; input tax could be deducted even though the claimant never intended to use its input supplies to carry out taxable transactions itself, since it had acquired them for the purposes of the business to be carried on by Faxworld AG.
The tax authority appealed on a point of law to the Supreme Tax Court, which referred the question to the European Court of Justice ("ECJ") for a preliminary ruling: Is a partnership which has been established for the sole purpose of forming a limited company entitled to deduct input tax paid on goods and services procured by it if, after that company has been formed, that partnership effects by formal act a transfer for consideration of the procured goods and services to the subsequently founded limited company and, from the outset, did not intend to carry out any other output transactions and if, in Germany as the Member State concerned, a transfer of a totality of assets is not deemed to be a supply of goods or services?
In it's ruling (C-137/02 on 29 April 2004) the ECJ held that the Vorgründergesellschaft is entitled to deduct input tax paid on goods and services procured by it. In recent decision the Supreme Tax Court now followed the ECJ's ruling.
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