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Input VAT Refund Procedures vs Assessment Procedures

Understanding the relationship between input VAT refund procedures and assessment procedures, and when each applies.

VAT refundassessmentproceduresBFH ruling
Input VAT Refund Procedures vs Assessment Procedures

Background

The Federal Fiscal Court (BFH XI R 17/22, judgment of June 25, 2025) has awarded input VAT deduction in the assessment procedure to a non-EU entrepreneur who was excluded from the input VAT refund procedure.

Key Distinction

In the case of input VAT deduction, a distinction must be made between two points in time:

  1. When the right to deduct arises - the period in which the (output) tax claim arises on the underlying supply
  2. When it can be exercised - the time at which the entrepreneur has a valid invoice

Implications

According to the Federal Fiscal Court:

  • The first date determines the applicable procedure (assessment or reimbursement)
  • The second date determines the period for which input VAT can be deducted

Practical Benefits

The ruling is advantageous for entrepreneurs because:

  • Input VAT deduction in assessment and refund procedures are mutually exclusive
  • Assessment procedure is generally more advantageous than refund procedure
  • For non-EU entrepreneurs, refund procedure may be completely excluded due to lack of reciprocity
  • In many cases, it's possible to go back up to seven years within the limitation period

Note

Not every circumstance is suitable for applying these principles. If registration is only made because of transfer of tax liability or incorrect tax statement, the refund procedure restrictions cannot be avoided.