Appropriate key for input VAT apportionment of mixed-use buildings - BFH ruling XI R 7/20

The BFH (Germany’s Federal Court of Finance) gives priority to the object-related turnover key when determining the input tax apportionment for mixed-use buildings (ruling dated 11 November 2020, XI R 7/20).

German VAT Code: turnover key is subordinate

In practice, there is often a dispute about the correct apportionment key with regard to the input VAT amounts for mixed-use buildings. Pursuant to Section 15 (4) Sentence 3 of the German VAT Code the non-deductible portion of the input VAT amounts can only be calculated by determining the ratio between output turnover for which the input VAT can be deducted and those for which it cannot be deducted, if no other economic allocation is possible.

BFH: Object-related turnover key before total turnover key and area key

A recent ruling by the BFH dated November 11, 2020 (XI R 7/20) stated, however, that input VAT amounts must be apportioned according to the (object-related) turnover key if there are significant differences in the furnishings and fittings of the rooms serving different purposes. The input VAT amounts must be apportioned on a percentage basis and not based on the room itself or its furnishings/fittings.

Moreover, the taxpayer does not have to prove that the turnover key is more precise than an area key. In the current ruling, the BFH also supplements ECJ (European Court of Justice) case law (ruling of June 9, 2016 - C-332/14) which states that the area key can only be applied if it is more precise than a turnover key. The BFH now only allows an allocation according to the area key if it is not only more precise than the total turnover key, but it is also more precise than an object-related turnover key.

Input tax key can be changed later

According to the BFH, the VAT taxable person is entitled to change the input VAT key if the previously chosen key was not appropriate. It is therefore advisable to review such cases again, especially if not all parts of the building are equipped with the same level of quality.

Dated: May 5, 2021