German Federal Fiscal Court restricts cash-basis VAT taxation

The German Federal Fiscal Court (BFH) has ruled that freelancers who voluntarily maintain books are ineligible for cash-basis VAT taxation (Ist-Besteuerung) under § 20 UStG. The court upheld a previous decision, confirming that the principle of tax neutrality prevents the application of this method to partnerships that choose to keep formal accounts, even if they are not legally required to do so.

The case involved a partnership of lawyers, auditors, and tax consultants that had previously been permitted to calculate VAT based on received payments. However, the tax office revoked this permission, citing that the partnership exceeded turnover limits and, due to its voluntary bookkeeping, did not qualify for the cash-basis method. The BFH's decision reinforces that voluntary bookkeeping status precludes the use of cash-basis taxation to ensure consistency with tax neutrality principles.