009. VAT: Input VAT Refund On Abortive Expenditures

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In a judgement dated 15 September 1994 (DStR 1995, 133), Germany's highest tax court denied refund of input VAT paid in connection with a construction project which was abandoned before completion.

Under German VAT law, an entrepreneur is entitled to a refund of input VAT separately invoiced to him by other entrepreneurs on goods and services he has purchased for his enterprise (input supplies). However, no input VAT can be claimed on input supplies to the extent they are used by the entrepreneur to perform certain zero-rated output supplies. The lease of real property is one such zero-rated output supply. However, if the real property is leased to another entrepreneur, it is generally possible for the lessor to elect to lease subject to VAT, in which case he is entitled to refund of input VAT spent, for instance, to erect