According to this circular, only unconditional clauses retroact to the time the contract was concluded.
In principle, the supply of immovable property is VAT exempt (Article 135 paragraph 1 lit. j and k of the Directive 2006/112/EC and section 4 no. 9 lit. a of the German VAT Act). The supplier can waive the VAT exemption and opt for taxation (Article 137 paragraph. 1 lit b and c of the Directive 2006/112/EC and Section 9 paragraph. 1 of the German VAT Act). In the fiscal authorities’ view, waiving VAT exemption regarding contracts for the purchase of immovable property can only be declared effective up to the expiry of the period for lodging an appeal.
The fiscal authorities’ view regularly leads to problems in cases where the parties to the contract for the purchase of immovable property assume a transfer of business as a going concern (Article 19 of the Directive 2006/112/EC and Section 1 paragraph 1a of the German VAT Act) that is not subject to VAT, as it often is not clear whether the conditions for the transfer of a business as a going concern are actually met.
There are often serious consequences for the seller if the parties wrongly assume the transfer of a business, as the fiscal authorities will treat the sale as a taxable but VAT exempt supply. Therefore, the transferor regularly needs to adjust his input VAT deduction. Often, an option for taxation is no longer possible. In order to prevent this and “to be on the safe side”, the parties have, in such cases to date, declared the option for VAT.
In its circular of October 23 2013, the Federal Ministry of Finance decreed that such options, that were originally declared as a precautionary measure, are to be made unconditional. Conditional options are invalid.
Because of the Federal Ministry of Finance’s circular, the previously used VAT clauses are to be adapted. In the future, only unconditional VAT clauses should be used in contracts for the purchase of immovable property.
Oliver Zugmaier
Tel: +49 (0)89 / 217 50 12 - 60
Email: oliver.zugmaier@kmlz.de
Website: www.kmlz.de
