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Germany: Sale and lease-back implications for input VAT

Germany: Sale and lease-back implications for input VAT

Depending on the specific structure of a contract and how it is actually implemented, a sale and lease-back transaction may consist of two separate transactions—a delivery and a return (as defined by Art. 3, para. 1 of the German VAT law (UStG)) or a lease-back as supply of services.


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Another possibility, according to guidance (3 February 2017) of the German Ministry of Finance (BMF), is a taxable service supplied by the lessor. For this treatment to apply, the primary focus of the sale and lease-back transaction must be to allow the lessee to enjoy favourable accounting treatment. In addition, the lessor must have provided a loan for the predominant share of the financing of the acquisition by the lessee.

Still, there may also be a single transaction by the lessor in the form of a tax-exempt loan (Art. 4 (8) (a) UStG)—pursuant to a judgment of the Court of Justice of the European Union (CJEU). Although the sale and lease-back transaction is tax-exempt, the CJEU concluded that a building does not require an input tax correction. The CJEU case concerns a Belgian company (taxpayer) that owned several buildings. The taxpayer fully deducted the Belgian taxes shown on the invoices for construction, remodeling or renovation measures as input tax. The taxpayer executed sale and lease-back transactions with two financial institutions in order to increase its liquidity.

Other developments

Other recent value added tax (VAT) developments that may affect businesses in Germany include the following items:

  • Substantive conditions for a zero-rated export (CJEU judgment of 28 March 2019 ‒ case C-275/18 ‒ Milan Vinš)
  • Place of provision of services in relation to seminars (CJEU judgment of 13 March 2019 – case C-647/17 – Srf konsulterna)
  • Correction of inaccurate application of law in the case of property developers (German Federal Tax Court judgment of 23 January 2019, XI R 21/17)

Read an April 2019 report [PDF 279 KB] prepared by the KPMG member firm in Germany.

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