Qualification of a community of part owners as a VAT taxable person

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Part owners as a VAT taxable person

In its recently published ruling of November 22, 2018, the BFH denied the status of a community of part owners as a VAT taxable person – with important practical consequences.

In the case at hand, a medical doctor had developed two methods for the early detection of certain tumors together with several colleagues and had concluded license agreements with a limited partnership. The license fees (which were based on sales) were credited to the various licensors by the limited partnership. The licensors did not form a partnership under civil law, but only communities of part owners since there was no connection under company law between the inventors.

Due to the fact that – in the absence of legal capacity – the income for a community of part owners must be allocated to the respective partners, and that VAT law is regularly linked to civil law when assessing the status of an entrepreneur, the BFH decided that a community of part owners cannot be a VAT taxable person. The Fifth Senate thus contradicted the administrative opinion which is currently set out in Section 2.1, para. 2, sentence 2 of the VAT Application Decree. In addition, the BFH confirmed once again that the right to deduct input VAT cannot be granted to the community of part owners, but only the individual partners.

The BFH is not of the opinion that procedural difficulties could arise from its decision. The court argues that an allocation of both services provided and received is possible by way of a separate and uniform determination in accordance with Section 180 (2) of the General Fiscal Code (AO).

For inventor communities, but also for all other communities of part owners, e.g. those of property owners, the decision of the BFH has considerable impact on the procedure of tax collection and input VAT deduction. In addition, invoices issued so far by the community of part owners could give rise to a tax liability pursuant to Section 14c German VAT Act (UStG) since – according to the opinion expressed by the BFH – VAT is owed not by the community of part owners but by the individual partners.

It remains to be seen how the tax authorities as well as legislator will react to the ruling of the BFH.

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