Non-application decree issued by Federal Ministry of Finance regarding input VAT deduction for development facilities

• The German Federal Ministry of Finance has issued a non-application decree in response to input VAT deduction for development facilities.
• The issue arises when a taxable person wants to develop an area for a taxable activity and must hand over the development facilities to the local authority for free.
• The German Federal Fiscal Court previously ruled that input VAT deduction is not allowed in these cases, but a recent ruling by the ECJ reversed this decision.
• The ECJ ruled that a taxable person is entitled to input VAT deduction for the costs of developing a road for a limestone quarry.
• The German Federal Fiscal Court has now accepted an indirect connection between procured goods and services and supplies subject to VAT for input VAT deduction.
• A supply carried out free of charge is not taxed if there is no risk of untaxed final consumption.
• The German regulation of supplies carried out free of charge has been reduced in line with Union law.
• If the procured supplies are necessary for the taxable person’s economic activity and the costs are included in the price of output transactions, taxation can be omitted.
• The Federal Ministry of Finance’s letter of 24 January 2024 did not bring about the expected turnaround in VAT treatment for development measures.

Source: kmlz.de

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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