Newsroom, VAT | 25. January 2023

Germany: VAT deduction on expensive cars restricted

In two decisions of the Federal Fiscal Court (Bundesfinanzhof, BFH), the corporate affiliation of ancillary and incidental sales is clarified and tightened using the example of the acquisition of so-called luxury vehicles by an entrepreneur with a different main activity. by

No VAT deduction for the purchase of expensive cars as a value investment

In two BFH decisions, entrepreneurs bought expensive cars as an investment. These cars were parked in a hall, locked and not registered. In both cases, the tax authorities denied the input tax deduction for purchasing the vehicles because it was not an economic activity and the expense was unreasonable. However, the legal proceedings before the Baden-Württemberg Fiscal Court ended, favouring the plaintiffs, who had the right to deduct input tax confirmed. The court ruled that entrepreneurial status also includes occasional activities such as purchasing cars as an investment in value, as long as there is an intention to generate income, regardless of whether there are business premises or sales advertisements are regularly placed.

The Federal Fiscal Court has ruled that entrepreneurs cannot obtain an input tax deduction for purchasing expensive cars as an investment. The court argues that the input tax deduction is only possible if the input service (i.e. the purchase price of the vehicle) is used for the taxed turnover of the entrepreneur. An economic activity within the meaning of Art. 9 (1) VAT Directive requires that the transactions are used for the sustainable generation of income. Therefore, the mere purchase and sale of an object is not a corresponding use. According to the BFH, the storage of an unregistered vehicle indicates that it is used as a collector’s item. As a rule, car collectors are not entrepreneurs. The acquisitions also do not constitute an ancillary business. They are also not to be seen as a direct, permanent and necessary extension of the original business activity.

BFH tightens requirements for occasional turnover to belong to a company

The Federal Fiscal Court has tightened the requirements for occasional turnover to belong to a business. In principle, the enterprise must comprise the entire entrepreneurial activity. Auxiliary transactions fall within the entrepreneurial sphere if they directly, permanently and necessarily expand the main activity. Additional transactions must also constitute, isolated, an economic activity that differs from that of a private individual. In similar cases, entrepreneurs must establish an economic link to the main entrepreneurial activity to secure the input tax deduction.


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