VAT option

10 hours ago

2 min read

To be on the safe side, the parties should avoid the option regarding VAT being subject to a condition precedent.

This is achieved by ensuring that the precautionary option is not made subject to a condition within the meaning of Section 158 of the German Civil Code (BGB), but is instead declared in the notarised property purchase agreement as an unconditional option in this sense.

Clauses in which the option is declared to be ‘as a precaution’, ‘in the alternative’ or ‘in the event’ that the tax authorities do not treat the property purchase agreement as falling within the scope of Section 1(1a) of the German Value Added Tax Act (UStG) should therefore be avoided. The following suggested wording contains a precautionary, unconditional option that has retroactive effect from the date the contract is concluded.

The parties assume that the business is being sold as a whole and is not subject to VAT in accordance with Section 1(1a) of the German Value Added Tax Act (UStG). As a precautionary measure, the seller hereby opts immediately and unconditionally for the sale of the property to be subject to VAT in accordance with Section 9 of the German VAT Act (UStG), in the event that it is not legally considered a sale of a business as a whole within the meaning of Section 1(1a) of the German VAT Act.”

“The parties assume that this constitutes a non-taxable sale of a business as a whole in accordance with Section 1(1a) of the German Value Added Tax Act (UStG). As a precautionary measure, the seller hereby opts immediately and unconditionally for VAT liability on the sale of the property in accordance with Section 9 of the German Value Added Tax Act (UStG), in the event that the transaction does not legally constitute a sale of a business as a whole within the meaning of Section 1(1a) of the German Value Added Tax Act (UStG). Without prior consultation, the parties will not lodge any appeals against the refusal of input tax deduction by the buyer’s tax office, which may be made on the grounds that the transaction does not constitute a sale of a business as a whole.”

Furthermore, the parties involved should disclose all information required by the tax office to assess the VAT. This includes, in particular, the tax identification numbers of the parties involved and the net purchase price.

It should also be noted that the purchaser is acquiring the land for their business. Furthermore, the contract must include the notice required under section 14a(5), first sentence, of the German Value Added Tax Act (UStG) regarding the transfer of tax liability to the recipient of the supply (Zugmaier/Fietz, NWB 2013 p. 3746 [3748]).

In this regard, the following wording is appropriate:

‘The seller issues a net invoice (Section 14a(5), second sentence, of the German Value Added Tax Act (UStG)), as the tax liability passes to the buyer pursuant to Section 13b(2)(3) in conjunction with paragraph 5, first sentence, of the UStG. The seller will therefore not collect the VAT either. The buyer’s obligation to declare and pay the VAT due is governed solely by the relevant tax regulations applicable to the buyer. The VAT is not owed to the seller.”