Landlords and condominium owners´ associations should not be considered taxpayers for telecommunications services received

In a letter dated 2 May 2022, the German Federal Ministry of Finance (BMF) exempts telecommunications services provided to landlords and condominium owners' associations from the reverse charge procedure. This severely strains the law’s wording.

Background information

In apartment buildings or houses with several condominiums, the landlord or condominium owners' association often has a contract with an internet and television service provider for these services and then charges the individual parties for such. For VAT purposes, the telecommunications companies thus provide a telecommunication service for which the reverse charge procedure can apply under sec. 13b (2) No. 12 in conjunction with (5) sentence 6 of the German VAT Act (UStG). The prerequisite for this is that the landlord/condominium owners' association is a so-called reseller, i.e., an entrepreneur whose main activity with regard to the acquisition of these supplies consists in their provision and whose own consumption of these supplies is of secondary importance. This is usually the case with landlords/ condominium owners' associations but is often overlooked.

The regulations of the BMF circular letter

In the case of landlords, telecommunication services are generally declared to be ancillary services to the rental within the meaning of sec. 4 No. 12 of the German VAT Code.

Based on this, the BMF rules that landlords are not resellers in this case.

For condominium owners' associations, the BMF limits itself to stating that they do not owe VAT if the telecommunications service is passed on to the individual condominium owners as a tax-exempt supply under sec. 4 No. 13 of the German VAT Code. However, the BMF leaves open the question of when the telecommunications service can fall under sec. 4 No. 13 of the German VAT Code.

This regulation is to apply to all open cases. If the reverse charge procedure was applied by the parties in agreement for supplies before 1 July 2022, this will not be objected to.

Assessing the regulation

The BMF does not communicate its considerations; however, the regulation is apparently based on the idea that telecommunication services lose their status as telecommunications services in these cases.

The classification of the telecommunication service as an ancillary service to the rental is convincing, since it usually occurs as a result of the rental, and complements it in a meaningful way, and thus corresponds to the EU legal definition of an ancillary service. That the telecommunications service is thus secondary to the rental is also at least a comprehensible argument for landlords not being considered resellers. In the case of condominium owners' associations, the BMF assumes that the telecommunication service provided by condominium owners' associations can independently, i.e., not as an ancillary service, fall within the scope of services of transferring the common property for use, maintenance, repair, and other administration, as well as the supply of heat and similar items, as specified in sec. 4 No. 13 of the German VAT Code, and that there is thus no longer any resale. The BMF does not provide any justification for this approach; at most, it seems conceivable that the telecommunication service could be regarded as a supply similar to heat.

Article 199a (1) (g) of the VAT Directive does not make resale a condition for the optional reverse charge procedure for telecommunications services. In this respect, the additional inclusion of this requirement by the German legislature is permissible but deviates from Article 199a (1) (g) of the VAT Directive in this respect. The fact that the BMF subsequently does not only qualify landlords but also condominium owners' associations as resellers is not fully comprehensible, but does not raise any concerns under European law. However, in our view, such an exception should have been regulated by the German legislature, as it is, at least with respect to the condominium owners' associations, incompatible with the wording of sec. 13b (5) sentence 6 of the German VAT Code (UStG). Taxable persons can refer to this.

Note regarding the period of validity

The optional reverse charge procedure for telecommunication services actually expires at the end of June 2022 in accordance with Art. 199a of the EU VAT Directive, but is to be extended again until the end of 2025 at the proposal of the EU Commission.

(Dated: 30 May 2022)