A signature with consequences

If a business owner’s lease agreement is in his and his wife’s names, he cannot claim an input tax deduction for his wife’s half of the lease. This was the recent ruling of the Düsseldorf Fiscal Court. However, the decision is not yet final.

The plaintiff operates an auto repair shop in leased premises. The lease agreement is in his and his wife’s names. He wanted to deduct the full input tax because he pays the rent alone and because he uses the leased repair shop 100% for his business. The tax office recognized only his half. The lawsuit filed against this decision has not yet been successful.

In the judges’ view, an input tax deduction is only available to the business owner who, as the recipient of the service, holds an invoice issued in his name. The recipient of the service is the person who, under the contractual relationship underlying the service, is entitled to use the property and obligated to pay the rent. This link between VAT law and civil law is necessary in the lessor’s interest. This is because the civil law situation determines, among other things, to whom the lessor may or must issue an invoice for services rendered.

Who pays is irrelevant

The plaintiff was granted the use of the premises by another business owner for the operation of an auto repair shop. However, he did not lease them alone, but jointly with his wife. It is irrelevant that the plaintiff paid the rent solely from his business account and used the leased premises exclusively for the purposes of his business. In the court’s view, the plaintiff could have claimed the full input tax deduction only if he had entered into the lease agreement alone—that is, without his wife—and thus become the sole lessee.

Conclusion: To better protect against loss of rent, landlords very often want the spouse to co-sign a lease agreement. However, this can have fatal consequences for the input tax deduction, unless the German Federal Fiscal Court, to which the case has been referred, were to soften the very strict interpretation of the fiscal judges.