VAT assessment for the dependent member of a VAT group can have a third-party effect for the head of the VAT group - BFH V R 13/20

The head of the VAT group wanted to claim input VAT incurred by dependent members of the VAT group, which could no longer be reclaimed by them.

The plaintiff was the sole limited partner and managing director of various limited partnerships (Kommanditgesellschaften, KGs). The plaintiff and the KGs filed separate VAT returns, which in some cases resulted in input VAT surpluses for the years in dispute. After the Federal Fiscal Court, through its amended jurisdiction, also recognised limited partnerships as dependent members of a VAT group, the plaintiff claimed that he was the head of a VAT group where the KGs were dependent members - which was also recognised by the tax office. He therefore applied for a change in his tax assessments and also claimed the input VAT surplus of the KGs.  However, the tax office rejected this because the tax assessments of the KGs were already time-barred and therefore could no longer be changed. A change in favour of the plaintiff would have meant that the input VAT surplus would have been granted twice.

The head of the VAT group must accept that the tax assessment of the dependent members cannot be appealed.

The BFH refused to amend the plaintiff's tax assessment, basing its decision primarily on Sec. 166 German General Fiscal Code, which states that if the tax has been determined to be incontestable vis-à-vis the taxpayer, this must also apply to anyone who – by serving as the taxpayer's representative – would have been in a position to contest the notice issued against the taxpayer.

Despite their status as dependent members of the VAT group, the KGs were taxable persons because tax assessments had been issued against them (albeit wrongly). For this reason, the head of the VAT group and the dependent members confront each other as third parties. Since the plaintiff, as sole limited partner and managing director, could have contested the tax assessments of the KGs but failed to do so, he must accept the incontestability of these decisions rendered against him – with the consequence that his tax assessment can also no longer be changed, and he cannot claim the input tax surplus of the KGs.

The BFH also addressed the rule of protection of legitimate expectations under Sec. 176 (1) sentence 1 no. 3 of the German General Fiscal Code. Accordingly, when a tax assessment is revoked or amended, the fact that the BFH's jurisdiction has changed may not be taken into account to the detriment of the taxpayer. The BFH clarified that it would be contrary to the principle of good faith if, in a case such as the present one, the head of the VAT group applied the new jurisdiction, but the dependent members invoked the protection of legitimate expectations. Specifically, it would be an unfair result for the head of the VAT group to claim the excess input VAT for itself under the new jurisdiction and for the dependent members to retain the excess input VAT under the old jurisdiction.

Recommendation

Here, the BFH rejects such "cherry-picking”, whereby members of a VAT group want to be treated differently for VAT purposes. However, this case involves various legal refinements in terms of general tax law - not all of which can be dealt with here.  The rejection of such "cherry-picking" should therefore not be hastily generalised - comparable cases require careful examination, with the strong recommendation that tax law advice be sought.