The Federal Ministry of Finance has updated the allocation of purchased supplies to a business
Input tax deduction is determined in accordance with the receipt of a supply for a business. Within the framework of the allocation decision, for a long while there were disagreements with regard to the date and type of documentation to be provided. The Federal Ministry of Finance (Bundesministerium der Finanzen, BMF) recently aligned its rules with national and international court rulings.
Ruling on the allocation decision
Whether or not input tax shown on invoices for incoming supplies is deductible will depend, first, on having a properly prepared invoice and, secondly but significantly, on how the supply is being used in the business. If it is being used entirely either for business purposes or purposes outside of the business, then a clear allocation requirement or allocation prohibition exists; in cases where it is partially being used for business purposes, an allocation option will be granted above a certain minimum usage.
In this respect, in 2021, the ECJ decided that an allocation decision has to be expressly made within the statutory time limit for submitting an annual VAT return; thereafter, in 2022, the Federal Fiscal court (Bundesfinanzhof, BFH) modified its view. It stipulated that an explicit allocation decision would only be required if there were no outwardly identifiable objective evidence of an allocation to the business.
The BMF’s current opinion
In its circular of 17.5.2024, the BMF took the basic view in this regard that, for reasons of legal certainty, the allocation decision has to be promptly documented and/or objectively identifiable. However, the fiscal administration will also recognise actions corresponding to those of a business, for example, via claiming input tax deduction. If this has not yet been claimed in the course of the advance VAT return procedure it can subsequently still be done in the annual VAT return. In this case, just the normal statutory submission deadline - i.e., 31 July of the subsequent year - needs to be taken into account. An initial allocation in the context of later deadlines for returns (e.g., via the German tax consultant’s privilege) will not be accepted by the fiscal administration.
