Revenue recognition in the case of partial performance in property developer contracts
In the case of a property development contract, purchase price instalments received in accordance with the progress of construction work - prior to the transfer of possession, benefits and burdens - do not generally lead to (partial) revenue recognition if there is no independently assessable partial performance.
The Düsseldorf tax court confirmed this in its ruling of 24.9.2025 (case reference: 10 K 459/23 G, F, Section 5 of the German Income Tax Act). The dispute concerned the purchase price instalments received by the taxpayer from the buyer of a property, in 2017, and whether the taxpayer was entitled to treat these payments as having no impact on income, or whether partial performance had been remunerated and would thus lead to revenue recognition.
In the case in question, the taxpayer was obligated to transfer the ownership of the property with a fully refurbished building. The transfer of possession, benefits, burdens and risk was dependent on readiness for occupancy so that, up to this point in time, the price risk remained solely with the taxpayer. While the construction and refurbishment services performed up to the date of invoicing constituted partial performance in the broader sense, nevertheless they did not meet the stand-alone requirement for partial revenue recognition because they were neither separately ready for acceptance nor independently usable or exploitable by the purchaser. Partial acceptance was not provided for. The services that the taxpayer had performed up to the point at which the invoices in question were issued were certainly, in a broader sense, partial performance within the scope of the fulfilment of the property development contract. The partial performance was however not separate and distinct in the sense that the recipient of the services could already make use of or exploit it.
It was likewise not possible to break up the refurbishment services into stand-alone partial services. In the case of the construction work performed this comprised works that were used as the basis for calculating further purchase price instalments in accordance with the progress of the construction work. However, the works were neither separately ready for acceptance - which was why partial acceptance was likewise not provided for - nor could the buyer already make use of or exploit them. The services thus differ from those provided by architects or engineers, who are able to meet the stand-alone requirement for partial revenue recognition.
