Qualification of a community of 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.

* mandatory fields

Your personal data is collected by Mazars in Germany, the data controller, in accordance with applicable laws and regulations. Fields marked with an asterisk are required. If any required field is left blank, it will not be possible to process your request. Your personal data is collected for the purpose of processing your request.

You have a right to access, correct and erase your data, and a right to object to or limit the processing of your data. You also have a right to data portability and the right to provide guidance on what happens to your data after your death. Finally, you have the right to lodge a complaint with a supervisory authority and a right not to be the subject of a decision based exclusively on automated processing, including profiling, that produces legal effects concerning you or significantly affects you in a similar way.