A key point in the draft of the Second Corona Tax Assistance Act (Zweites Corona-Steuerhilfegesetz) is the reduction of the regular VAT rate from 19 % to 16 % during 1 July 2020 and 31 December 2020.
Rental real estate enterprises should be particularly aware of the following issues:
The new tax rate applies if the service has been rendered (i.e. rental period lies) within the period of 1 July 2020 to 31 December 2020.
Relevant invoices (such as long-term rental invoices) have to be issued with the new tax rate. Generally, an adjustment of the lease agreement is not necessary; however, if the lease agreement qualifies as invoice, an additional document should be issued which sets out the new tax rate (Sec. 31 UStDV).
The changes also apply to other services and ancillary services or service elements provided within a lease agreement during the relevant rental period (e.g. in case of VATable (construction cost) subsidies and (ancillary) services invoiced as ancillary rental costs).
In the case of gross leases (i.e. leases that do not disclose VAT or include VAT; most common in parking space leases or short-term leases), the all-over rent remains the same; i.e. after the registration and payment of VAT the landlord can keep a higher “net rent” to himself.
In principle, there is no legal obligation to pay out the VAT “benefit” to the tenant. However, the tenant may have contractual claims or a claim acc. to Sec. 29 UStG (lease agreement was concluded four calendar months or earlier before the change in the law came into force).
Received invoices have to be checked carefully with regard to the set-out VAT rate in order to avoid any unlawful deduction of input VAT from an incorrect invoice.
Please also note impacts on VAT exempt leases, insofar as the costs from services received (e.g. ancillary rental costs) should generally be lower. Therefore, received invoices should also be carefully checked with regard to the set-out VAT rate.
Please see the draft letter of the fiscal authorities (BMF-Schreiben) “Befristete Absenkung des allgemeinen und ermäßigten Umsatzsteuersatzes zum 1. Juli 2020” for further details. It is doubtful whether a final version will be available by 01 July 2020.
The final resolution on the draft of the Second Corona Tax Assistance Act in the German Bundestag is still pending; however, it is expected that the Act will be published in the Federal Law Gazette before 1 July 2020 and will thus enter into force, shortly.
Tax law. The deduction of input VAT on basis of a construction work invoice containing an abstract service description of the executed work can be sufficient if it is apparent to which specific construction project the invoice relates.
Judgement of the Federal Fiscal Court (BFH) dated 15 October 2019, ref. V R 29/19 (formerly V R 44/16)
A service company in the industrial sector claimed input VAT from construction work invoices. The financial authorities, however, denied the input VAT deduction as the invoice details were allegedly not specific enough. On the one hand the financial authorities presumed a lack of information re the dimensions of the constructed object. On the other hand the invoice presumably did not include the exact execution date of the construction work. The company, however, stated that the invoice details were sufficient as the construction project could be verified from the other details of the invoices and the date of the construction work was indicated by the date the invoice had been issued. The Federal Fiscal Court confirmed the company’s opinion.
Section 14 of the German VAT Code (UStG) sets out the invoice details required for a deduction of input VAT. These details are mandatory in order to put the tax authorities in a position to identify and check the invoiced services properly. According to the Federal Fiscal Court it shall, however, be sufficient if the details enable the tax authorities to easily identify the invoiced services. Therefore, an exhaustive description of the invoiced services was not deemed necessary. In the case at hand, these requirements were met as the overall invoices gave enough details about the specific building project and the place of its execution. With regard to the date of the executed services, the Federal Fiscal Court continues its previous case law (Ref. V R 18/17). If the invoice is being issued immediately after the building has been finalized and approved, as is customary in the building industry, the date of the execution of the construction work corresponds to the date of the invoice and, therefore, is sufficient, unless apparently indicated otherwise.
What is to be done?
The Federal Fiscal Court confirms that service descriptions must indeed be specified in the relevant invoice and that it is not sufficient to merely state a service category. Therefore, the invoice should always set out the required additional information. Please note, that even the calendar month in which the service was rendered can be a sufficient execution date. Therefore, the Federal Court of Finance allows invoices re construction works to be issued without a specific execution date, if it can be assumed that the work was performed in the month in which the invoice was issued. However, in order to avoid risks we recommend to always set out a specific execution date or at least the addition “date of execution equals date of issued invoice”.
Lawyer and tax consultant Isabel Tannenberg of KUCERA.
KUCERA advised Nuveen Real Estate on the tax aspects of the purchase of a retail park in Bopfingen/Baden Württemberg. The acquisition took place on behalf of an institutional investor for an open ended real estate fund. The approx. 7,400 m² rental area is leased on a long-term basis to the food supplier „Rewe“ and „dm drogeriemarkt“. In addition, the object provides gastronomy and office spaces as well as approx. 170 free parking spaces. Read more…
Nuveen Real Estate was advised by KUCERA partners Rolf Krauß and Isabel Tannenberg (both tax).
KUCERA advised a special fund of Nuveen Real Estate on the sale of the “Olymp” portfolio to the special fund “Redos Einzelhandel Deutschland II”. The rental space of the portfolio comprises a total of 141,000 m² and consists of eleven specialist retail and hybrid centres. These are located in West Germany and Berlin, such as the Durlach Center in Karlsruhe or the Allende Center in Berlin Köpenick. Anchor tenants include Kaufland, real, EDEKA, REWE, Penny, Rossmann and Saturn. Read more…
Responsible were KUCERA partners Rolf Krauß and Isabel Tannenberg together with associate Leila Idrissi (all Taxation).
Isabel Tannenberg joined KUCERA as lawyer in the Real Estate Taxation department in 2011. In 2015 she was admitted as tax consultant.
Her practice focuses on tax and corporate law advise of national and international investors, open-end and closed-end real estate funds, insurance companies and project developers in connection with real estate transactions and structuring. In addition, she gives tax advise to her clients on lease agreements and supports them in and out of court.
Isabel Tannenberg, KUCERA strengthens the field of real estate tax law with a
home-grown partner, in particular with regard to value added tax, real estate
transfer tax and real estate tax, and thereby takes one more step towards a new
generation of partners.
KUCERA has advised TH Real Estate on the purchase of the “ACTIV-Arkaden” in Horb am Neckar. On behalf of an institutional investor TH Real Estate has acquired the retail park which opened in October 2017.
The “ACTIV-Arkaden” are within walking distance of the city center and centrally located at the station square in front of the newly designed bus station. The approx. 6,000 sqm of total rental space are long-term leased to the food retailer Rewe and to the drugstore Müller.
Rolf Krauss (Partner – Real Estate Taxation) and Isabel Tannenberg (Associate – Real Estate Taxation) were responsible for tax advice. Read more…
KUCERA advised TH Real Estate on the purchase of a retail park in Oppenheim. TH Real Estate has acquired this for an institutional investor as part of an asset deal. The property was opened in October 2017 and offers through the anchor tenant Kaufland, among other things, 400 car parking spaces and an e-gas station.
Responsible for the tax advice were Rolf Krauss (Partner – Real Estate Taxation) and Isabel Tannenberg (Associate – Real Estate Taxation). Read more…
The comprehensive rights of instruction, which are based on a controlling agreement, lead to an organizational integration in the sense of VAT tax grouping. KUCERA-partner Rolf Krauss (Taxation) comments on the Federal Fiscal High Court’s judgement issued 10 May 2017 in the Immobilien Zeitung. Read more…
The ECJ judgment has to decide whether the real estate transfer tax relief granted for a restructuring within a according to § 6a GrEStG group is a prohibited subsidy under the EC regulations. KUCERA-partner Rolf Krauss (Taxation) comments on the Federal Fiscal High Court’s decision issued 30 May 2017 in the Immobilien Zeitung. Read more…
Organizational integration in the sense of VAT grouping may also exist without mirrored management boards in the controlling parent and the controlled subsidiary company. Tax partner Rolf Krauss from KUCERA comments on the Federal Fiscal High Court’s judgement issued 12 December 2016 in the Immobilien Zeitung. Read more…