Operating equipment: No splitting requirement in the case of uniform supply – BFH ruling V R 7/23 (V R 22/20) of 17 August 2023

In the "Finanzamt X" case, the ECJ had ruled that the leasing of operating equipment together with the leasing of the real estate is VAT exempt if, taken together, these form a uniform supply (as we reported here). The BFH (German Federal Fiscal Court), which had referred the case to the ECJ, implements this in its follow-up decision and changes its previous established case law.

Background

The subject matter of the dispute was the leasing of a turkey barn with various operating facilities.

According to the wording of § 4 no. 12 sentence 2 UStG (German VAT Code) and also Art. 135 no. 2 lit. c EC VAT Directive, only the leasing of the turkey barn itself would be VAT exempt. The leasing of the operating equipment would be taxable. The uniform remuneration would therefore have to be split accordingly.  In the BFH’s opinion, however, the conditions of a uniform supply were also fulfilled.  This gave rise to the question of whether the principle of uniformity of supply took precedence over the splitting requirement.

After the ECJ clarified that Art. 135 No. 2 lit. c of the EC VAT Directive only provides for a splitting requirement insofar as the leasing of operating equipment is carried out as an independent supply, the BFH concurs with this opinion and abandons its previous contrary ruling which stated that the leasing of the turkey barn and the operating equipment are VAT exempt in their entirety.

Practical consequences

Section 4.12.10 p. 1 UStAE (German VAT Application Decree), which requires the splitting, is no longer tenable and must be changed.

Taxpayers who lease real estate together with business equipment should (continue to) keep assessment notices open with reference to the ECJ and BFH case law if a uniform treatment would be more favourable for them. The case law now indicates that it is permissible to treat the supply as VAT exempt in its entirety if the main supply is VAT exempt, but this should be disclosed to the tax office due to the VAT Application Decree, which currently still indicates otherwise in its wording. The prerequisite is always that it is actually a uniform supply, a fact that must be carefully checked. Two cases currently pending before the BFH (V R 15/21 and XI R 8/21) will address the question of what exactly constitutes a uniform supply. These two cases concern the supply of electricity as an ancillary service in the case of VAT-exempt leasing.

An important consideration is that the input VAT deduction for the operating equipment is lost in the case of a uniform treatment as VAT exempt. However, it would be possible to opt out of the VAT exemption as a whole since the leasing of the operating equipment also falls under § 9 para. 1 UStG due to the uniformity of the supply.

The principles of the present ruling should theoretically be transferable to other uniform supplies with a statutory splitting requirement. In its decision of 7 March 2022 (XI B 2/21), the BFH had suspended further proceedings in order to await the ECJ decision on "Finanzamt X". That case dealt with hotel accommodation that included breakfast, for which a splitting requirement applies with regard to the VAT rate pursuant to § 12 (2) no. 11 sentence 2 UStG. Under the premise that this is a uniform supply, this splitting would also not be compatible with case law. The decision remains to be seen.

Dated: 20 September 2023

Author

Nadia Schulte
+49 211 83 99 330