BFH rules on input VAT deduction on sale of limited partners’ shares

The BFH has held that a partnership is not allowed to deduct input VAT from invoices for notary or due diligence services carried out with respect to the sale of limited partners’ shares.

The Federal Tax Court (BFH) has ruled that a partnership may not deduct input VAT from invoices for notary or due diligence services carried out with respect to the sale of limited partners’ shares.

In the case, a partnership deducted the input VAT from invoices from a notary with respect to a notarized sale and transfer contract for the sale of the limited partners’ shares, as well as the input VAT from an invoice for due diligence services with respect to the sale of shares.

Although the partnership bore these costs with respect to the limited partners’ shares, the BFH held that no input VAT deduction was possible at the level of the partnership because it determined that the partnership could not be considered the recipient of the services.

The BFH clarified that the recipient of a service should, in general, be the party ordering the service, but may be the party actually receiving the service in certain circumstances. However, neither the person paying for the service nor the person actually benefiting economically from the service should automatically be considered the recipient of the service.

Based on these principles, the BFH ruled that the services rendered by the notary were not supplied to the partnership, but instead were rendered to the owners of the limited partner shares, while the due diligence services were supplied to the purchaser of the shares; the partnership only bore the costs of the services.