The German Federal Tax Court (BFH) concluded that for purposes of value added tax (VAT), a “co-ownership by defined shares” is not a “VAT trader.” Instead, the BFH held that co-owners provide the supplies—that are subject to VAT—proportionately as individual traders.
In the case before the BFH, several inventors jointly created an invention. Under § 6 sent. 2 of the German Patent Act, they were jointly entitled to the patent rights. If the parties did not reach any particular agreement, they would have—because of the mere fact of their joint activities in inventing—a co-ownership relationship in accordance with §§ 741 et seq. of the German civil code (Bürgerliches Gesetzbuch—BGB).
The BFH viewed each inventor as a “supplying trader” who must pay VAT on the license fees accruing to that person on the basis of the statutory VAT rate. The BFH noted that from a VAT perspective, a co-ownership by defined shares cannot be a trader. According to civil law, the “co-ownership by defined shares” does not have legal capacity and therefore cannot incur liabilities. Thus, from a VAT perspective, a co-ownership by defined shares also cannot provide any services.
In reaching these findings, the BFH explicitly rejected its prior case law to the contrary.
The change to BFH case law not only affects communities of inventors (as in the case at hand) but also will be important for popular real estate collectives (see § 1008 BGB) as emphasized by the BFH in a related press release.
Other recent VAT developments that may affect businesses in Germany include the following items:
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