An amendment of the input VAT deduction must be made for goods that are not used only once to carry out transactions if the circumstances change within the relevant correction period. The relevant correction period is ten years for land and buildings on third-party land and, in all other cases, five years.
A change in circumstances typically occurs in the case of rented real estate when the ratio between turnover that excludes input VAT deduction and turnover that allows input VAT deduction changes, resulting in a higher or lower input VAT deduction compared to the original assessment.
A change in circumstances also occurs if the use remains the same but the legal assessment of the original input VAT deduction later proves to be incorrect, provided that the original tax assessment for the relevant calendar year is already time-barred and cannot be amended. If the limitation period for assessment had not yet expired, the original calendar year would have to be amended formally.
The reason for the incorrect assessment in the original calendar year (e.g. if incorrect factual assumptions were made) is not decisive.
Example (see BFH of 11.12.2024, XI R 4/23): This is possible if an original input VAT deduction of 100% from the purchase of a wood chip drying plant has to be amended because of a court ruling which determines after the expiration of the limitation period that the use is considered for non-entrepreneurial purposes insofar as the produced heat is provided free of charge.
In principle, these types of amendments are possible for a certain number of remaining years of the limitation period due to the extended adjustment period of ten years for land and buildings on third-party land. For other assets, no adjustment of the input VAT deduction is possible due to the adjustment period of five years, which has generally already expired.
Example (simplified)
In 2019, the German entrepreneur (UDE) constructs a building that is later actually rented out for 60% to entrepreneurs for their entrepreneurial activity for which UDE opts for VAT. In the annual German VAT return 2019 submitted by UDE in the calendar year 2020, UDE - which retrospectively turns about to be incorrect - deducts 100% of the input VAT from the production costs (100,000 €), which is only noticed during a special VAT audit in the calendar year 2025. The original input VAT deduction was not claimed in an incorrect amount either intentionally or negligently (Note: otherwise the limitation period would be extended!). The building is used for the first time on 1 January 2020.
The input VAT deduction in the annual German VAT return 2019 was incorrectly assessed, as only 60% of the input VAT amounts were deductible (and not 100 %) according to the actual usage ratio. The limitation period for the VAT assessment for 2019 expires on 31 December 2024. An amendment for the calendar year 2019 is therefore no longer possible as of 1 January 2025. As the VAT assessment for 2019 can no longer be amended due to the expiration of the limitation period, the input VAT deduction must only be corrected from the calendar year 2025 onwards until the end of the correction period in accordance with Section 15a UStG. If UDE had to amend the original input VAT deduction, a repayment of the incorrectly claimed input VAT in the amount of 40,000 € would be due. The correction period begins at the time of first use (here: 1 January 2020), so that five years have already passed by 1 January 2025. For the remaining five years of the correction period, UDE must make an annual correction of 4,000 € in accordance with Section 15a UStG (100,000 € * 1/10 [correction period] * 40 % [change in circumstances from 100 % input VAT deduction to 60% actual input VAT deduction] = 4,000 €, if applicable paid in monthly amounts). In total, UDE therefore repays (only) 20,000 € of the input VAT amount incorrectly claimed.
As the example illustrates, there is a significant difference between a presumed eligible input VAT adjustment and one that is actually legally possible. The significantly lower VAT liability resulting solely from the relevant years of the adjustment period not being subject to the limitation period for assessment indicates that caution is required in similar cases. It is important to ensure that adjustments are not made for years that are already time-barred.