KPMG Germany Webpage Click on the above link to visit the KPMG Germany webpage on the Mondaq website
For disclaimer and copyright see end of this article.
In a judgement dated 15 September 1994 (DStR 1995, 133), Germany's highest tax court denied refund of input VAT paid in connection with a construction project which was abandoned before completion.
Under German VAT law, an entrepreneur is entitled to a refund of input VAT separately invoiced to him by other entrepreneurs on goods and services he has purchased for his enterprise (input supplies). However, no input VAT can be claimed on input supplies to the extent they are used by the entrepreneur to perform certain zero-rated output supplies. The lease of real property is one such zero-rated output supply. However, if the real property is leased to another entrepreneur, it is generally possible for the lessor to elect to lease subject to VAT, in which case he is entitled to refund of input VAT spent, for instance, to erect the building being leased.
In the judgement cited, the taxpayer had incurred expense in the planning phase of a parking garage which he first intended to construct. The project was later abandoned. The taxpayer claimed to have intended to lease subject to VAT and sought to recover input VAT expended in the planing phase. In effect, the taxpayer wanted the question of entitlement to the input tax refund decided with respect to the output supply he initially intended to perform, but never did.
The Court rejected this approach, holding that expense for aborted projects was to be attributed to output supplies actually performed in accordance with cost accounting principles. In other words, the abortive expense was to be attributed to the sales (output supplies) which, economically speaking, funded this expense. Unfortunately for the taxpayer, all of his actual output supplies consisted in leasing other parking garages free of VAT (zero-rated). Accordingly, no VAT was recoverable on the aborted project either.
The holding would appear to be applicable to cases of theft and accidental loss or damage as well. The approach indicated by the Court seems to be to permit refund of input VAT on such expense in the ratio which sales (output supplies) carrying input VAT refund entitlement bear to total sales.
Disclaimer and Copyright
This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. We in particular insist that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Any claims nevertheless raised on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The New Turkish Commercial Code ("New Code") has been enacted and will enter into force in July 2012. One of the major changes brought by the New Code regards mandatory independent audits of corporations.
The law about payment of dividends has remained substantially unchanged for thirty years.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).