Back to News

Federal Fiscal Court Decision on Input VAT Deduction and Refund Procedures

A landmark ruling by the Federal Fiscal Court (BFH) clarifies the timing of input VAT deduction for non-EU entrepreneurs. The court distinguishes between when the right to deduct arises and when it can be exercised, potentially opening the door for entrepreneurs to claim tax via the assessment procedure even when reciprocity is lacking.

VAT
Federal Fiscal Court Decision on Input VAT Deduction and Refund Procedures

Core Summary: Key Findings

1. The Case: Timing and Procedure

A non-EU plaintiff purchased and sold gas in Germany in 2018. The supplier initially failed to charge VAT, only issuing a corrected invoice in January 2019. The tax office denied the deduction for 2019, arguing that the conditions for the assessment procedure (domestic sales) were not met in that specific period, and the refund procedure was blocked due to a lack of reciprocity.

2. The BFH Decision: Two Decisive Moments

The Federal Fiscal Court ruled in favor of the plaintiff, establishing a critical distinction:

The Period the Right Arises: This is determined by the date of the underlying supply (here: 2018). This date dictates which procedure applies (Assessment vs. Refund). Since the plaintiff had domestic sales in 2018, the assessment procedure was applicable.

The Period the Right is Exercised: This is determined by the date the entrepreneur receives a valid invoice (here: January 2019). This date dictates when the deduction is claimed in the tax return.

The court concluded that it is irrelevant if no taxable output transactions were performed in the specific month the invoice was received (January 2019), as long as the assessment procedure was triggered by the transactions in 2018.

3. Treatment of Demurrage Costs

The BFH clarified that demurrage fees (fees for loading/unloading delays) are not "non-taxable damages." Instead, they are transport-related costs that follow the tax treatment of the main service (the gas supply) and are therefore subject to VAT.

4. Practical Impact for Entrepreneurs

This ruling is highly advantageous for non-EU businesses:

  • Bypassing Reciprocity Issues: Entrepreneurs excluded from refund procedures due to lack of reciprocity may now use the assessment procedure if they had domestic sales at the time of the supply.
  • Better Deadlines: The assessment procedure offers longer limitation periods (potentially up to seven years) compared to the strict, short deadlines of the refund procedure.
  • Liquidity: The assessment procedure is often processed faster than refund applications, which can take months.