Utilization of an option provided for by law is not an abuse

Last Thursday, the BFH published its decision XI R 5/21 dated 12.7.2023. Among other things, it concerns the allegedly abused right to deduct input tax and the question of when the tax liability “arises”. The judgment goes hand in hand with the problem that the ECJ has addressed in the Rs. C-9/20 and reveals that Germany needs to improve the implementation of Art. 167 of the VAT Directive.

However, according to the BFH, this circumstance alone does not justify the revocation of the option of actual taxation in accordance with § 16 UStG. There is simply no legal possibility to do so. To a certain extent, the courts have prohibited the FA from using procedural means to enforce what cannot be done from a pro-fiscal perspective. Namely, the reimbursement of (pre)taxes that are not owed and are not foreseeable (actually cash-flow effective).

The problem is obvious, not least because of this ruling. Actual taxpayers only pay VAT when they receive it. However, § 15 UStG does not contain a time component with regard to the question of the “legally owed” tax. Consequently, the right to deduct input VAT is linked to the general condition of the occurrence of VAT, i.e. the actual supply of goods or services – unlike the ECJ in the above-mentioned case. In application of the BFH case law, the exercise then requires, among other things, a proper invoice.

Does this open the door to tax jeopardy?

I don’t know. The BFH rightly points out that the right to deduct input tax is fundamentally subject to the law. further requirements – i.e. in particular, there must be actual performance. However, I see problems with benefits between related parties. According to § 10 Abs. 5 sentence 2 UStG, there is no corrective in the opposite direction for unreasonably high charges, as is the case for unreasonably low charges. As a result, the agreed higher remuneration is simply applied (Section 10 (1) sentence 1 UStG), which could lead to inappropriate advantages, at least temporarily.

What remains?

Anything other than a prompt adjustment of the conditions for input tax deduction would be a surprise. In future, therefore, suppliers who apply actual taxation will have to include a corresponding note on the invoice. Input tax can therefore only be claimed by the recipient of the service as long as the debt has been settled.

For companies, this means a further need for adjustment and control on the input side, as one more factor must be taken into account when claiming the input tax deduction. This is also the only sensible solution in terms of preventing abusive arrangements.

This is all the more true as the requirements can be “simply” exchanged in a structured way through the future local B2B #eInvoicing.

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