BFH decision on the purchase price allocation for real property

Since April 2014, the Federal Ministry of Finance has provided the tax administration with a working aid for apportioning the total purchase price for a developed property (purchase price apportionment). In its ruling of 21 July 2020 (Ref.: IX R 26/19), the Federal Fiscal Court has now decided that this assistance may no longer be used in disputes between the taxpayer and the tax office.

Why is the purchase price allocation relevant at all?

Anyone who acquires a property for the purpose of earning an income usually has an interest in dividing the purchase price in such a way that the building accounts for as high a proportion of the purchase price as possible and the land for as low a proportion as possible. This is because depreciation for wear and tear can be claimed on the building portion. In principle, the tax office is obliged to accept the values from the notarial purchase contract as long as there are no significant doubts (BFH, judgement of 10.10.2000, ref.: IX R 86/97). If any doubts arose, the tax office, in its constant practice, referred back to the BMF’s working aid.

What are the facts underlying the current ruling?

In the specific case, the taxpayer plaintiff had purchased a rented condominium in a major city. While the plaintiff assumed a depreciable building share of 82%, the tax authorities arrived at a building share of only 31% via the working aid. The BFH has now countered this disproportion. The BMF’s working aid was not entirely suitable for determining the real market values of land and buildings. This is justified, on the one hand, by the fact that the working aid only uses the simplified asset value method. On the other hand, the location factor, which can lead to massive market value deviations, especially in large cities, is not taken into account.

What is the consequence of the ruling?

First of all, the ruling leads to the inapplicability of the FOM’s working aid in disputed cases. Instead, the tax authorities now have to obtain an expert opinion from an independent sworn expert in cases of doubt.

In any case, it makes sense to base the property purchase contract on comprehensible and plausible values. Finally, the above-quoted ruling from 2000 still applies; the tax office is still required to adopt the purchase price allocation from the notarial purchase contract, provided there are no significant doubts. According to settled case law, this only arises if, for example, there are indications of a fictitious transaction or an abuse of the tax structure.

Therefore, the tax advisor should be consulted on questions of the drafting of real estate purchase contracts in the run-up to the purchase.

Limits to the scope and comprehensibility of GTCs in internet payment transactions ("Paypal terms of use")

In a ruling of 19 February 2020 (Az. 6 U 184/19, ZIP 2020, S. 2057 ff.), the Cologne Higher Regional Court dealt with the effective inclusion of general terms and conditions in the internet-based procedure for cashless payments in electronic commerce. The applicant, a consumer protection association, brought an action for an injunction against the defendant, a globally active online payment service with about 200 million commercial as well as private users. There was unfair trading pursuant to §§ 3, 3a, 5 para. 1 p. 2 no. 3 and no. 7 of the Unfair Competition Act (UWG) in conjunction with section 305 (1) of the UWG. 2, § 307 para. 1 p. 2 BGB (German Civil Code). The terms of use of the payment service provider would, according to the plaintiff, create the false impression that they were effectively included when the contract was concluded. This constitutes an infringement of the principle of equal treatment as set out in § 305 para. 2; 307 para. 1 sentence 2 of the German Civil Code (BGB).

The subject of the dispute were “Paypal terms of use” with a length of 83 DIN A4 pages. The plaintiff demanded the issuance of a cease-and-desist declaration and a declaration of commitment and was of the opinion that the extensive GTC had not become part of the contract.

In principle, such GTCs that violate the regulations in §§ 305 ff. BGB shall not become part of the contract or shall not be effective. Instead, the statutory regulations shall apply. In the present proceedings, the applicant alleged a violation of the transparency requirement. Accordingly, the clauses were not drafted in a sufficiently clear and comprehensible manner for the consumer. Contrary to the impression conveyed by the terms of use, they had not become an effective part of the contract for this reason.

Terms of use such as these are too extensive with a length of 83 DIN A4 pages. An average reader would have to spend about 80 minutes to read it completely, which was not reasonable. Moreover, when reading on a smartphone, one would have to “scroll” about 330 times to read the GTC completely.
Furthermore, an analysis of the GTC by “TextLab”, a software for indexing comprehensibility, found that only a comprehensibility score of 3.18 on a scale of 0 to 20 (according to the “Hohenheim Comprehensibility Index”) was achieved. Moreover, the individual sentences were also too long. A total of 38% of the sentences had a length of more than 20 words. The longest sentence even contained 111 words.

Nevertheless, the Cologne Higher Regional Court did not agree with these arguments and considered the action to be unfounded. Contrary to the applicant’s view, there was no violation of the transparency requirement. The court argued that consumers have become accustomed to concluding contracts on the internet. Texts can be enlarged, so that reading would not require too much effort. Ultimately, the consumer could also decide for himself how intensively he would deal with the content of the GTC; these were of secondary importance when concluding a contract on the internet.

Furthermore, the number of 83 pages could not be the only decisive factor. Finally, the present terms of use would also allow payment transactions between up to five parties using different payment methods, which would justify the scope of the GTC.

Even if extensive “additional conditions” were included, this would not make it unreasonable for the consumer to take note of the entire GTC. The labelling alone as “additional conditions” made it sufficiently clear to the consumer that this part had no meaning for him.
Ultimately, the evaluation of comprehensibility was also insufficient, as it could not take all factors sufficiently into account. For example, it should not be inadmissible to use foreign words – they only have to be explained in an understandable way.
In this respect, it remains to be noted that even such extensive GTC can be effectively included. Especially in electronic legal transactions and internet-based payment processors, there is a considerable need for regulation, which is sometimes reflected in extensive general terms and conditions or terms of use.

If you are dealing with questions relating to your online shop or e-commerce, we will be happy to advise you, just as we do in our other advisory areas.

The New Flat Ownership Law

The reformed Flat Owners’ Act (Wohnungseigentümergesetz, WEG) has been in force since 01.12.2020 and brings with it numerous innovations for administrators and flat owners. In essence, the reform is intended to eliminate bureaucratic problems due to decision quorums or regulations that are distant from practice. This is to be achieved through more rights of the condominium owners’ association and the administrator as well as a greater possibility of structuring the internal relationship of the condominium owners’ association. The most important innovations are summarised below:

1. modernisation measures can be decided more easily

In order to counteract the modernisation backlogs that are quite common in practice, the owners’ meeting may in future decide on all structural changes to the common property with a simple majority. In order that individual condominium owners are not excessively burdened with additional costs, only those owners who have also agreed to the measure must contribute to the costs of the decided measure. This principle is not applied after §21 Abs. 2 Satz 1 WEG Only two cases of deviation: Either the measure must be amortised within a reasonable period of time or it must have been decided by a 2/3 majority of the condominium owners and be realisable through a not disproportionately high cost.
In addition, every flat owner will be able to demand modernisation measures in future, provided they contribute to accessibility, e-mobility or burglary protection, or access to faster internet is achieved through them. In this case, however, he must bear the costs himself. Other flat owners who also want to benefit from this measure can be obliged to make a compensation payment.

2. more powers for the administrator

The administrator represents the WEG in external relations without limitation. Consequently, all contracts that he makes for the condominium owners’ association are also binding on it. Only in the internal relationship can the flat owners limit his power of representation.
The new WEG law also no longer provides for an explicit catalogue of duties for the administrator. Instead, he is now liable under §27 para. 1 No. 1 WEG is obliged to take all measures of minor importance. All previous duties of the administrator naturally continue to fall under this; in individual cases, especially in the case of larger administrative units, §27 para. 1 No. 1 WEG now defines the duties and powers of the administrator.
At the same time as the extended powers, however, the new WEG also introduces the certificate of competence for administrators in the WEG that has been desired for years. After a transitional period, as of December 2022 only the appointment of a certified administrator fulfils the standard example of proper administration of §19 para. 2 No. 6 WEG. Certification can be obtained in accordance with §26a WEG either through appropriate professional qualification or through examination at the IHK.


3. dismissal of the administrator

In its previous form, the WEG required an important reason for the dismissal of an administrator. This regulation is now no longer applicable, so that an administrator can now be dismissed without giving reasons. In this case, the administrator’s contract ends at the latest 6 months after the dismissal. In addition, the administrator can no longer challenge the dismissal in court.

4. quorum of owners’ meetings

Under the new WEG, owners’ meetings will in future always have a quorum; §25 WEG no longer provides for a quorum. However, owners’ meetings must be held in accordance with §24 para. 4 sentence 2 WEG, the meeting must be convened in future with a notice period of 3 weeks instead of 2 weeks.
Likewise, a simple majority will suffice for all resolutions in future. Here, each condominium owner continues to have one vote, regardless of how many condominium units are owned. However, it is possible to deviate from this regulation, so that previous deviating regulations thus remain effective. According to a new provision of §23 para. 1 sentence WEG, condominium owners will in future also be able to participate in owners’ meetings in electronic form.

5. financial management of the condominium owners’ association

The costs shall be allocated in accordance with §16 para. 2 sentence 1 WEG according to co-ownership shares. In deviation from this, however, a different distribution key can now be agreed. However, this cannot be agreed as a lump sum, but only with regard to individual costs and cost types, such as for maintenance measures.

For more information, please contact us!