Correction of a shift in sales over several years

The BFH judgement concerns the correction of a shift in turnover across years in accordance with the provisions of the AO.

The plaintiff was subject to debit taxation in the year in dispute. It did not pay tax on the services it provided in the period in which the services were rendered, but only in the period in which the remuneration was received. Payment claims based on services already rendered that had not yet been fulfilled by the end of the year were recorded by the plaintiff in a remuneration account, which showed the amount of the services rendered but not yet taxed.

At the end of 2012, the remuneration balance totalled around EUR 32,000. The resulting tax claim was only recognised by the plaintiff in the advance returns submitted in 2013 (year in dispute) with the respective receipt. At the end of 2013, there was a remuneration balance of around EUR 102,000, which the plaintiff again incorrectly did not pay tax on until 2014.

As part of an external audit, the tax office objected to the late taxation and amended the assessment notices for the years 2013 to 2015. The 2013 amendment notice also included the remuneration balance of around EUR 102,000 existing at the end of 2013.

Based on Section 177 para. 1 AO (correction of material errors), the plaintiff applied to reduce the assessment basis for 2013 - corresponding to the increase made - by the remuneration balance of around EUR 32,000 existing at the end of 2012, as this should have already been taxed by the plaintiff in 2012. The tax office rejected the application as a corresponding increase in VAT for 2012 was no longer possible due to the statute of limitations.

The action was unsuccessful before the Mecklenburg-Vorpommern Fiscal Court. The plaintiff's appeal against this decision was successful.

If an entrepreneur (debit taxpayer) does not tax its sales for the period in which the service is provided, but only for the period in which the payment is subsequently received, it can, according to the BFH, claim that the tax assessment for the tax period in which the payment is received is unlawful.

With § 174 AO (conflicting tax assessment), there is a statutory provision for the case to be assessed here, which precludes the assumption of a loophole and thus an analogous application of § 20 para. 3 UStG.

In the case in dispute, the tax office had issued the tax assessment notice at issue here on the basis of a legally erroneous assessment of certain facts (taxation of the services already performed in 2012 only upon receipt of the remuneration in the following year), which was to be amended in its favour on the basis of the application submitted by the plaintiff (no taxation of the services performed in 2012 in the year in dispute 2013). Therefore, the correct tax consequences could also be drawn from the facts of the case for 2012 by subsequently amending this tax assessment notice, whereby this is possible under the conditions set out in Section 174 (4) sentences 3 and 4 AO even if the assessment period for the 2012 VAT has already expired.

The plaintiff is therefore entitled to the requested amendment of the 2013 VAT assessment pursuant to Section 172 para. 1 sentence 1 no. 2 letter a half-sentence 1 alternative 2 AO, according to which a tax assessment, insofar as it has not been issued provisionally or subject to review, may only be cancelled or amended if the taxpayer's application is granted on the merits. The unlawfulness of the assessment notice for 2013 also means that the tax office's discretion, which exists in principle, is reduced to zero in accordance with Section 172 para. 1 sentence 1 no. 2 letter a AO.

Contrary to the opinion of the tax office, according to the Federal Fiscal Court, the amendment block of Section 173 para. 2 AO does not exclude a correction after an external audit on the basis of provisions other than Section 173 para. 1 AO - and thus according to Section 172 para. 1 sentence 1 no. 2 letter a AO, which is applicable here.

In consulting practice, the topic of accrual accounting is repeatedly encountered, whether in a situation comparable to the case decided by the BFH or where input VAT amounts are claimed late. This judgement may help to prevent a tax assessment based on a period deferral that is unfavourable to companies. In this context, please note the one-year deadline in Section 174 para. 4 sentence 3 AO. Due to a period shift, reference should also be made to the judgement of the Cologne tax court dated 8 October 2024 - 8 K 1735/23 (see here under the heading "From the tax courts" at the end of the newsletter).