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Germany: Co-ownership by defined shares, not "VAT trader"

Germany: Co-ownership by defined shares, not VAT trader

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.


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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. 

KPMG observation

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 VAT developments

Other recent VAT developments that may affect businesses in Germany include the following items:

  • European Parliament: Statement on the planned reform of the VAT system in the EU from 1 July 2022 (report of 25 January 2019)
  • Input tax deduction for foreign branches (CJEU, judgment of 24 January 2019 – case C-165/17 ‒ Morgan Stanley)
  • Taxation of payments by instalment according to Union law (CJEU, judgment of 29 November 2018 – case C-548/17 – baumgarten sports & more GmbH)
  • Liability for VAT when trading goods on the internet (BMF, guidances of 17 December 2018 and 28 January 2019)
  • Brexit “quick check” from KPMG

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