Consequences of the BFH ruling on December 16, 2020 – XI R 26/20 (XI R 28/17): Gratuitous donations and input tax deduction

• The Bundesministerium der Finanzen is addressing the issue of free donations and input tax deduction.
• A business is entitled to deduct input tax if they receive input services for the purpose of their business activities.
• A business can deduct input tax if they intend to use the services for their business activities to provide paid services.
• Previously, there had to be a direct and immediate connection between the input and output services for the deduction to be allowed.
• However, the BFH has ruled that a deduction is allowed for indirectly business-related input services that are provided free of charge to a third party, as long as there is no risk of untaxed final consumption.
• The decision applies to all states in Germany.

Source: bundesfinanzministerium.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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