By ruling of 21 July 2020 (Case No. IX R 26/19, BStBl. II 2021, 372) the Federal Fiscal Court (Bundesfinanzhof) established a far-reaching principle regarding the allocation of the purchase price: If the contracting parties have agreed in the notarial purchase agreement on an allocation of the purchase price between land on the one hand and building on the other, and this allocation corresponds to the actual value proportions, the fiscal court may not replace it with an allocation determined using the BMF working aid. The ruling is the landmark decision on the weaknesses of the BMF working aid and, together with IX R 12/21 (2022) forms the practice-defining framework of modern case law on purchase price allocation.

Background: The BMF working aid

The Federal Ministry of Finance provides tax offices with a so-called "working aid for allocating a total purchase price for a developed property." This Excel tool allocates the purchase price using a simplified cost approach – without regional price adjustment factors, without accounting for individual market conditions, and without the option to choose the method appropriate for the respective property type. Especially in metropolitan areas, this regularly results in a systematically too-low building share and consequently in an insufficient depreciation (AfA) basis.

The case

The plaintiffs purchased a condominium unit in a major city. The notarial purchase agreement included a purchase price allocation showing a building share of approximately 70%. The tax office applied the BMF working aid and determined a building share of only about 40%. The fiscal court sided with the tax office – even though the plaintiffs submitted an expert opinion supporting the contractual allocation.

The decision

The Federal Fiscal Court overturned the fiscal court's ruling and remanded the case. The key findings:

1. Contractual allocation takes precedence. If the parties have agreed on an allocation in the purchase agreement, this is generally binding on the tax authorities and courts – as long as it does not fundamentally deviate from the actual value proportions (i.e., it was not made arbitrarily or as a sham, cf. IX R 38/17).
2. The BMF working aid is not binding. The court makes clear: The BMF working aid does not guarantee an allocation based on actual market values. It is based on a simplified cost approach without a regional adjustment factor and therefore does not reflect reality in high-price regions and in the case of income-approach-driven rental properties.
3. In case of doubt: an expert opinion. If there are doubts about the contractual allocation, the fiscal court must generally obtain an expert opinion. It may not replace the contractual allocation solely by mechanically applying the BMF working aid.
4. Openness of methods. The ruling ties in with IX R 12/21 (2022): Even in judicial purchase price allocation, the sales comparison approach, income approach, and cost approach are of equal standing. The choice depends on the individual case.

What this means for landlords

• Secure the contractual allocation. Anyone purchasing a rented property should insist that the notarial purchase agreement includes a purchase price allocation – one that reflects the actual value proportions (and thereby stays within the ±20% threshold from IX R 38/17 ). This allocation is then binding on the tax office.
• Rebutting the BMF working aid. If no contractual allocation exists, or if the tax office wants to impose its own calculation: an expert opinion that reflects the actual value proportions using ImmoWertV methods is the decisive counterargument (cf. IX R 12/21).
• Retroactive review. If tax assessments are still open, an appraisal report can be submitted afterward. The tax office is then obliged to review it – and cannot dismiss it by pointing to its own working aid.