Charitable Associations can Use an Average Sum for VAT in the Year of Founding

In the summer of 2002, seven persons founded a charitable association having the goal to foster culture. In September 2002, they preformed a concert and obtained a net turnover of EUR 141,799 and cashed in on EUR 9,925.93 on VAT. In their predeclaration on VAT for September, this association typed in these amounts and set off the same amount on input tax. This input tax was computed pursuant to §23a I 1 UStG as a flat sum. This provision determines that charitable organizations deduct input tax with the flat rate of 7% if they are not required to submit balance sheets - and only the flat rate. The competent tax office denied deducting the flat input tax and only accepted the (lower) actual spent input tax. The office argued that this rule is not valid for the first year of business.


This association did not accept this and fought for their right in court. They finally won in the Federal Tax Court (decision of June 27, 2006, re V B 143/05, published on August 30, 2006).

According to the opinion of the federal tax court, the legal position is clear. The legislator, may not have explicitly regulated the situation of a charitable position in the year of its founding but this situation will, therefore, be ruled by the general rules. These say that since in the founding year you do not have an accounted turnover, one must rely on the income of the founding year. Besides that, it would also contradict the purpose of §23a UStG.

This once again shows not to blindly trust your tax office. A second look might bring promising advantages.


Published on the old CMS: 2007/1/19
Read on the old CMS till November 2008: 1,403 reads


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