Update: Instalment payments do not constitute partial supplies or uncollectability – BMF circular letter dated 14 December 2022

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Instalments partial supplies BMF letter

After the BFH (Federal Fiscal Court) implemented the corresponding ECJ ruling on the VAT treatment of instalment payments in its ruling of 31 January 2022 (V R 37/21), the BMF (Federal Ministry of Finance) is now amending the VAT application decree accordingly.

If the parties agree to pay in instalments for a one-off service that is not a continuous service, the supplier must pay the VAT in full when the service is performed and thus pre-finance it. Nor can he invoke a reduction of the tax base. This was decided by the ECJ on 28 October 2021 (C-324/20) following a referral by the Federal Fiscal Court (as we reported here).  In response to the follow-up decision of the BFH, the BMF is now adapting the VAT application decree (UStAE) as follows:

  • Section 13.1, para. 1, sentence 3:  "The accrual of tax is not limited to claims for consideration that are already due (cf. BFH ruling of 01.02.2022 - V R 37/21 (V R 16/19), BStBl II p. XXX1)."
  • Section 13.4 sentence 4:  "A partial service within the meaning of section 13(1) no. 1(a) sentence 3 German VAT Code requires a service of a continuous or recurring nature (cf. BFH ruling of 01.02.2022 - V R 37/21 (V R 16/19), BStBl II p. XXX1)."
  • Section 13.4 sentence 5: "On the other hand, there is no partial payment if it is a one-off supply in return for payment in instalments.
  • Section 17.1, para. 5, sentence 6: "The agreement of payment by instalments does not constitute irrecoverability within the meaning of section 17, para. 2, no. 1 German VAT Code (cf. BFH ruling of 01.02.2022 - V R 37/21 (V R 16/19), BStBl II p. XXX1)."

The regulations are to be applied in all open cases. There is no transitional regulation.

It should be noted here, however, that only those instalment payments are affected that relate to supplies where the successful performance occurs once. A very careful distinction must be made here, as the ECJ case law shows.  For example, the ECJ ruled in the "baumgarten sports & more" case of 29 November 2018 (C-548/17), which the BFH followed (V R 8/19 of 29 June 2019): The placement of a football player, which is paid in instalments according to the player's length of stay at the club, is a service with a permanent effect divided into partial services due to the payment in instalments. In such a case, the VAT only becomes due in stages.

1Because the page number has not been published yet in the Bundessteuerblatt (BStBl; Federal Fiscal Gazette), "XXX" is used as a placeholder.

Dated: 5 January 2023

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