Apartment rental with parking space is generally VAT exempt overall - BFH-ruling V R 41/19

Parking spaces in an intermediate complex accessible by external parties in a tight parking situation

The plaintiff had erected a building complex consisting of a front and a rear building that were partly offered for residential purposes. In a connecting part (intermediate complex) there were underground parking spaces that could be rented by the apartment tenants and also by external parties. Access to the underground car park was possible without entering the apartment complexes. The plaintiff concluded separate rental agreements for use of the parking spaces and, in each case, these were separate from the apartment rental agreements.

The Thuringia Fiscal Court (3 K 246/19, ruling of June 27, 2019) had ruled in this regard that the rental of parking spaces was VAT taxable because Section 4 No. 12 Sentence 2 of the German VAT Code expressly excludes the rental of vehicle parking spaces from the VAT exemption for property rentals and the rental of parking spaces was not an ancillary service to the residential rental. This applies here despite the case law of the ECJ in the "Henriksen" case (C-173/88, July 13, 1989). According to this ECJ ruling, the rental of parking spaces is also VAT exempt if it is closely related to a VAT exempt rental, e.g. for residential purposes, and both constitute a single economic transaction. According to the German interpretation, this corresponds with the definition of an ancillary service. This is said to be the case if the parking vehicle spaces and the property used for residential purposes are part of the same building complex and both are rented out by the same landlord to the same tenant.

The Thuringia Fiscal Court did not consider this close economic connection to be given in the present case so that it did not consider the rental of the parking space to be an ancillary service to the rental of the residential property. This was due, on the one hand, to the fact that the parking spaces were located in an intermediate complex between the two residential units and therefore did not constitute a single building complex. On the other hand, it was relevant that external parties could also rent the parking spaces and not every residential tenant had rented a parking space. For the apartment tenants, use of the parking space was not so elementary that the use of the apartment would not have been possible even without a parking space. Thus, there was no compelling connection between the two services. Moreover, given that the complex was located in an inner city in which parking spaces were scarce, there were separate markets for apartments and parking spaces.

BFH: Location in an intermediate complex, access for external parties, and specific parking situation are irrelevant

The BFH did not acknowledge the arguments of the Thuringian Fiscal Court. On the one hand, there is a uniform building complex within the meaning of the ECJ's "Henriksen" case law even if the parking spaces are located in an intermediate complex. Moreover, a uniform economic transaction does not require that the main service cannot be provided without the ancillary service. The fact that external parties also have access to the parking spaces is also irrelevant, and so is the fact that the main service and the ancillary service are also offered on separate markets and independently of each other.

For real estate companies, the excitement should subside

For real estate companies, the situation thus remains unchanged. Parking spaces in an underground garage can still also be rented to external parties without the tax exemption of parking space rentals to residential tenants being questioned. Even unusual construction forms, in which the underground garage is not located directly under the apartments, do not preclude a VAT exempt ancillary service. However, there are certainly limits here in the sense that the parking spaces may not be structurally completely detached from the residential units.

For the rental of parking spaces to be a VAT exempt ancillary service, however, Sec. 4.12.2 of the administrative guidelines to the German VAT Code must still be observed. The examples given there clearly emphasize that the rental agreements for the apartment and parking space must be concluded between the same parties - although it is innocuous that this does not take place at the same time. In the case of more complex corporate law structures of the entities involved , treacherous mines can lurk here. With living space becoming increasingly scarce, it is also not uncommon for a parking space to be used not for a vehicle but as a storage area. In the opinion of the tax authorities, this does not affect the VAT exemption.

If, on the other hand, a VAT taxable rental of the parking spaces is sought because of the input VAT deduction, measures should be taken, if possible, to ensure a greater structural separation from the residential unit. Having someone other than the landlord (but related to them) as signatory to the parking space rental agreement is also an alternative.

(Dated: June 25, 2021)