New opportunities for input tax deduction in the regular assessment procedure

Input tax refund procedures

Foreign companies can reclaim input tax in Germany through two different procedures: the regular assessment procedure and the input tax refund procedure.

In order to claim input tax under the regular assessment procedure, foreign companies generally must have carried out supplies that trigger a VAT registration requirement in Germany. If this condition is not met, the input tax refund procedure is typically the only option available.

In its recent decision, the BFH had to determine which point in time is decisive for choosing the correct procedure in cases involving a belatedly corrected invoice.

The decisive point in time: receipt of the service

In the case at hand, a company based in a non-EU country had made a taxable domestic supply in 2018. The original incoming invoice did not include any VAT. In the following year (2019), the company received a corrected invoice with open VAT shown, but by then it was no longer generating sales in Germany.

The company’s application for an input tax refund was rejected by the Federal Central Tax Office due to a lack of reciprocity. The tax office also denied input tax deduction in the regular assessment procedure, arguing that the company had not carried out any domestic supplies at the time the corrected invoice was issued.

The BFH clarified its established case law on invoice corrections: the issuance of a corrected invoice showing VAT has no retroactive effect and allows the input tax deduction only in the year the corrected invoice is received.

At the same time, the court emphasized that a proper invoice is not a material prerequisite for the input tax deduction to arise. It merely determines when the deduction can be exercised. In this case, the input tax deduction had already arisen in 2018, when the taxable domestic supply was carried out.

Consequently, the BFH ruled that the input tax deduction in the assessment procedure was justified because the regular assessment procedure was applicable at the time of receiving the service (i.e., when the input tax deduction arose), even if the necessary conditions were no longer met when the corrected invoice was issued in 2019.

What does this mean for companies?

This ruling makes it easier for foreign companies to claim input tax deductions under the regular assessment procedure if they carried out taxable supplies in Germany in the year in which the service was received but did not generate further sales later on.

It softens the previous administrative practice, under which the right to deduct input tax in the regular assessment procedure was generally tied to the existence of domestic supplies at the time of receiving the invoice.

Foreign companies should therefore check, upon receiving an invoice with German VAT, whether they were required to register in Germany at the time the service was received. In many cases, this approach can help avoid lengthy processing times and strict deadlines associated with the input tax refund procedure. Our VAT experts will be happy to assist you in assessing your specific situation.