Federal Fiscal Court - The purchaser of a property is not liable for VAT that has been incorrectly stated in the tenancy agreements that have been taken over
Under the civil law principle that “property purchases are subject to existing tenancy agreements” a purchaser of a let property automatically takes over the existing tenancies of the previous owner. In this respect, the Federal Fiscal Court (Bundesfinanzhof, BFH) recently clarified that an incorrect statement of the VAT element in tenancy agreements that the previous owner had initiated will not be assigned to the purchaser. In such a case, there shall be no liability pursuant to Section 14c(1) sentence 1 of the VAT Act (Umsatzsteuergesetz, UStG).
In its ruling of 5.12.2024 (case reference: V R 16/22) the BHF made a decision regarding a claimant who had purchased a development with a multi-storey office building in the context of a compulsory sale procedure in 2013, the relevant year. The vendor had let the premises to, among others, an outpatients clinic and a physiotherapy practice. In the tenancy agreements the monthly net rent was stated and - with the addendum "+ 19 % VAT” - the VAT amounts were shown as well. As of the purchase date, the claimant themself treated the revenues from letting as VAT-exempt. The local tax office took the view that because tax was stated in the tenancy agreements then, according to Section 14c(1) sentence 1 UStG, the VAT shown was owed by the claimant as of the date of purchase of the property and accordingly determined this vis à vis the claimant. The tax court endorsed the legal view of the local tax office.
The BFH clarified that the purchaser had no liability pursuant to Section 14c(1) sentence 1 UStG since the erroneous statement of the VAT had been caused by the original lessor and not by the purchaser. Liability is based on the assumption that an incorrect statement of the VAT element happens in the name of the actual service provider - in this case of the purchaser. As the tenancy agreements were concluded by the previous owner and the purchaser was not involved in their issuance there is a lack of a basis of liability. Furthermore, the BFH stressed that the mere acquisition of ownership and taking over the tenancy agreements in accordance with Section 566 of the German Civil Code does not establish liability under tax law. This provision primarily protects the tenant and is not geared towards tax obligations. Likewise, the sale of a business pursuant to Section 1(1a) UStG does not result in the purchaser becoming liable for the vendor’s obligation to pay VAT. The tax stated in the tenancy agreements does not constitute a transferable asset that falls under singular succession for VAT purposes.
While the BFH clarified the importance of the contractual documents for the purchaser’s liability risks, nevertheless in its ruling it explicitly left open the business sale aspect, which is of practical relevance as well. This is because if the object of the sale of a business is a let property that is liable to VAT, then the question that will also arise on the part of tenant will concern the implications of the transfer of the agreement. The BFH did not have to clarify whether or not a tenancy agreement concluded with the vendor where the latter is shown as the provider would still satisfy the formal requirements for input tax deduction once the purchaser has taken over the position of the lessor. In order to avoid disputes, affected companies should eliminate any uncertainties by amending the agreements accordingly or, in appropriate cases, by issuing a new continuous invoice. The BFH ruling enhances legal certainty for property purchasers and makes it clear that tax mistakes made by the previous owner are not automatically passed to the new owner.
