Insights
VAT
Implications of a later VAT option
An option that is limited solely to the rental turnover exceeding the advance payment is not possible due to the indivisibility of the supplies, according to the Federal Fiscal Court (BFG).
The Federal Fiscal Court (BFG) had to decide how an advance payment originally treated as non‑taxable under the so‑called "unecht umsatzsteuerfrei" regime should be assessed for tax purposes when a VAT option is exercised at a later date.
A sole shareholder‑managing director earned income from renting a business premises to his GmbH as tenant. In 2013 the director agreed with the tenant on a rental advance payment that was intended to proportionally reduce the rent from 2015 for two years. This advance payment was treated in 2013 as non‑taxable under the "unecht umsatzsteuerfrei" rule. In 2015 the director opted for VAT on the rent, but treated only the rental turnover exceeding the advance payment as taxable.The director therefore regarded only a small part of the rent as taxable. The tax office did not accept this view and subjected the entire turnover – including the advance payment – to VAT, against which the director lodged an objection and appealed to the Federal Fiscal Court.
Decision of the Federal Fiscal Court
The BFG states that the original tax‑free treatment of the rental advance payment was correct from a VAT perspective. The question therefore arose how an advance payment originally exempt under the "unecht umsatzsteuerfrei" regime is to be dealt with when a later option is exercised. In principle, rentals of commercially used premises are exempt from VAT under the "unecht" exemption, although an option to tax is possible. No specific form is required to exercise the option. The turnover merely has to be shown as taxable in a VAT advance return or in the VAT return.
The director, however, wanted to apply the option only to the portion of the turnover that exceeded the advance payment. The BFG clarified that a split of the turnover into a tax‑exempt and a taxable part is not permissible, because the rental of a business premises constitutes an indivisible supply. Since the option was therefore not exercised correctly, the entire turnover must be treated as non‑taxable under the "unecht" exemption. Consequently, the claimed input tax deduction cannot be recognised. The VAT shown on the invoice is additionally due by virtue of the invoicing.
Awaiting the supreme courts
The BFG regards the rental of the same business premises to the same person as an indivisible supply. Consequently, no separation can be made between a paid advance and the remaining rent; both payments have the same VAT fate.
As a revision to the Administrative Court (VwGH) is permissible and an appeal to the Constitutional Court (VfGH) is pending, it remains open whether the supreme courts will reach the same result as the BFG.
A sole shareholder‑managing director earned income from renting a business premises to his GmbH as tenant. In 2013 the director agreed with the tenant on a rental advance payment that was intended to proportionally reduce the rent from 2015 for two years. This advance payment was treated in 2013 as non‑taxable under the "unecht umsatzsteuerfrei" rule. In 2015 the director opted for VAT on the rent, but treated only the rental turnover exceeding the advance payment as taxable.The director therefore regarded only a small part of the rent as taxable. The tax office did not accept this view and subjected the entire turnover – including the advance payment – to VAT, against which the director lodged an objection and appealed to the Federal Fiscal Court.
Decision of the Federal Fiscal Court
The BFG states that the original tax‑free treatment of the rental advance payment was correct from a VAT perspective. The question therefore arose how an advance payment originally exempt under the "unecht umsatzsteuerfrei" regime is to be dealt with when a later option is exercised. In principle, rentals of commercially used premises are exempt from VAT under the "unecht" exemption, although an option to tax is possible. No specific form is required to exercise the option. The turnover merely has to be shown as taxable in a VAT advance return or in the VAT return.
The director, however, wanted to apply the option only to the portion of the turnover that exceeded the advance payment. The BFG clarified that a split of the turnover into a tax‑exempt and a taxable part is not permissible, because the rental of a business premises constitutes an indivisible supply. Since the option was therefore not exercised correctly, the entire turnover must be treated as non‑taxable under the "unecht" exemption. Consequently, the claimed input tax deduction cannot be recognised. The VAT shown on the invoice is additionally due by virtue of the invoicing.
Awaiting the supreme courts
The BFG regards the rental of the same business premises to the same person as an indivisible supply. Consequently, no separation can be made between a paid advance and the remaining rent; both payments have the same VAT fate.
As a revision to the Administrative Court (VwGH) is permissible and an appeal to the Constitutional Court (VfGH) is pending, it remains open whether the supreme courts will reach the same result as the BFG.