Statutory background
As a rule, income from the letting and leasing of land and buildings is exempt from VAT under § 4 No. 12 S. 1 lit. a UStG. This rule also applies under EU law, namely in Art. 135 (1) lit. l of the VAT Directive. By contrast, income generated from the letting or leasing of machinery and other equipment (operating equipment) is not VAT-exempt. Operating equipment can be defined as devices of any kind through which the business is directly carried on (machine-like function). Examples include freight elevators, work platforms, conveyor belts, bowling alleys, etc. For a detailed list, please refer to the decree on § 68 BewG, Annexes 1 and 2. Where the rent or lease payment – as in the following dispute – was paid as a single sum for the land, building and operating equipment, the apportionment requirement set out in the Senate's judgment of 28 May 1998 – V R 19/96, BFHE 185, 555, BStBl II 2010, 307 previously had to be applied. This meant that the VAT-exempt portion attributable to the letting or leasing of the land and building and the VAT-liable portion attributable to the letting or leasing of the operating equipment each had to be shown as separate amounts.
Case at issue: leasing of stable buildings for turkey rearing
In the years in dispute, the plaintiff leased both a stable building and the corresponding operating equipment (e.g. feeding, heating and ventilation systems) for turkey rearing. The lessee invoiced a total amount which did not distinguish between the leasing of the building and the leasing of the operating equipment. Accordingly, the plaintiff concluded that the entire lease payment was VAT-exempt under § 4 No. 12 S. 1 lit. a UStG. The competent tax office, however, applied the apportionment requirement. The total amount was therefore split in an 80/20 ratio between the VAT-exempt leasing of stable buildings and the VAT-liable leasing of operating equipment. The plaintiff filed suit against the VAT-liable lease income.
BFH/CJEU judgment: no apportionment requirement
Since the VAT exemption for the letting and leasing of land and buildings is essentially determined by EU law, the CJEU first ruled on the dispute. The CJEU held (CJEU judgment Finanzamt X, EU:C:2023:372, answer to the question referred and para. 39) that no apportionment between VAT-exempt and VAT-liable lease income is to be made if the letting or leasing of operating equipment constitutes an ancillary service to the main service (letting or leasing of land and buildings) between the same two contracting parties.
The BFH consequently followed the CJEU's ruling and will therefore no longer apply the apportionment requirement in such cases.
In the present dispute, the entire lease income is therefore VAT-exempt under § 4 No. 12 S. 1 lit. a UStG. The equipment and machinery in question (feeding, heating and ventilation systems) are specifically tailored fittings whose sole purpose is to ensure the contractual use of the turkey stable under optimal conditions. There is therefore a single economic supply comprising the leasing of the stable building and the operating equipment.
Frequently asked questions
Frequently asked questions
Are rental income from land and buildings exempt from VAT?
Yes, pursuant to § 4 No. 12 sentence 1 lit. a UStG, income from the leasing and renting of land and buildings is generally exempt from VAT. This rule is based on Art. 135 (1) lit. l of the VAT Directive (MwStSystRL). An exception previously applied to co-leased operating equipment (Betriebsvorrichtungen), the consideration for which was subject to VAT.
What are operating fixtures (Betriebsvorrichtungen) for VAT purposes?
Operating fixtures (Betriebsvorrichtungen) are devices of any kind with a machine-like function that are used directly to carry on a trade or business. Examples include freight elevators, work platforms, conveyor belts, and bowling alleys. A detailed list is provided in the decree on § 68 BewG, Annexes 1 and 2.
Does the rent still have to be split when operating equipment is leased along with the property?
No. Following the ECJ ruling (EU:C:2023:372) and the subsequent BFH decision, the splitting requirement no longer applies if the leasing of operating equipment constitutes an ancillary service to the principal service (leasing of land/building) between the same contracting parties. In that case, there is a single economic supply that may be exempt from VAT in its entirety.
When is the co-leasing of operating equipment a VAT-exempt ancillary service?
An ancillary service exists when the operating equipment is specifically tailored to the building and serves exclusively the optimal contractual use. In the decided case, feeding, heating, and ventilation systems of a turkey barn qualified as ancillary services to the barn lease. The decisive factor is the economic unity of the overall service.
Does the elimination of the apportionment requirement also apply outside of agriculture?
Yes, the principles can be transferred to other letting and leasing arrangements, for example to buildings with freight elevators or similar operating equipment. VAT-exempt letting is therefore possible even when operating equipment is leased along with the property, provided it qualifies as an ancillary service to the provision of the building.