When procedures for VAT liability and recovery conflict

In its “Titanium” ruling (C-931/19), the Court of Justice of the European Union (CJEU) decided that a rented property, operating without the owner’s own staff, does not in itself create a fixed establishment for VAT purposes. German administrative guidance, however, still treats foreign owners of German property let on a taxable basis as “established” in Germany.

That tension can become critical during vacancy periods. In the case at hand, a Luxembourg property company holding German real estate emptied its building in late 2024 for refurbishment, expecting to resume leasing in late 2026. During 2025, it mainly incurred substantial refurbishment costs and claimed input VAT in its German monthly VAT returns.

The local tax office refused to process the VAT advance returns claiming the input VAT on refurbishment costs. The tax office informally recommended the cross-border VAT refund procedure instead, arguing that the vacant property meant there was no German fixed establishment from a VAT perspective in accordance with federal VAT circulars (Umsatzsteueranwendungserlass). 

This created an obvious contradiction: for rental activity, the same taxpayer could be treated as established in Germany, but during refurbishment it was suddenly pushed into the non-established refund regime. Further, due to the lack of a formal and litigable assessment by the local tax office, the client was left to either remain on the original path and risk missing cross-border VAT refund filing deadlines, or switch procedures and risk limitation periods expiring in the “ordinary” procedure. This approach taken by German tax revenue authorities seems to have become more common following the CJEU's "Titanium" decision.

The approach taken for resolution was procedural rather than theoretical. The company obtained VAT registration in Luxembourg so the special refund procedure could be started within the deadline if necessary. At the same time, the company put pressure on the German tax office by announcing "failure-to-act" appeals, and asking the tax office to either process the returns or issue a formal rejection. This approach prompted appealable decisions either way and helped protect the taxpayer against timing risks.

The matter was resolved shortly afterwards when the German tax office processed the advance VAT returns and granted the input VAT claims in full. Even so, the case shows how inconsistent administrative practice can expose foreign investors to conflicting VAT positions, cash-flow pressure, and avoidable litigation risk. For property structures under refurbishment or in temporary vacancy, the procedural route may become just as important as the substantive VAT analysis.

One provocative question remains: Was this just a misunderstanding or could this approach become a new way of interest-free, short-term public financing?

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Sami Omar combines tax advisory and audit expertise with two decades of hands-on experience across complex M&A and structuring projects, external interim management, and internal guidance roles. Sami focuses on asking questions that change outcomes and on teaching through unconventional perspectives.