Value added tax/input tax

Contract research is characterised by the following traits:

• the activity is part of an exchange of services
• a concrete research project is agreed upon and
• the exploitation and publication rights rest with the client either in whole or in part.

Depending on the funding body and how the results and rights are distributed in individual cases, a distinction must be made between basic research and contract research. Basic and in-house research, externally funded research without having to provide services in return (e.g. DFG) as well as official assistance (e.g. requests from the science ministry) are exempt from turnover tax.

Each funding body has its own way of distinguishing between basic research and contract research:

• Benefits/allocations/grants received via a ministry’s letter of notification: are considered tax-free basic research, since there is no exchange of services.
• Orders placed by the Federal Ministry of Education and Research (Bund) or individual states (“Ressortforschung”): If the research serves the client's sovereign purposes, it is considered to be sovereign assistance. This means that the research is necessary for the client to be able to carry out his/her sovereign duties. In these circumstances, such contracts are exempt from turnover tax. To ascertain whether the research in question should be classified as sovereign assistance or as contract research, every case needs to be reviewed individually.
• Orders placed by the Baden-Württemberg Stiftung gGmbH (Baden-Württemberg Foundation): These orders always involve an exchange of services, since the research results are transferred to the foundation. As a result, any contracts with the Baden-Württemberg Foundation are subject to turnover tax. When carrying out research projects with the Baden-Württemberg Foundation, you need to make sure to assert potential tax-reducing circumstances such as input tax deduction in the areas of material expenses, travel expenses and investments.
• Orders placed by publicly financed funding bodies: Here, case-by-case reviews are called for to evaluate whether federal funds are merely being passed through (executive agencies) or if a contract for individual research is being made. Depending on the circumstances, the order may or may not be exempt from turnover tax.
• Orders placed by associations, foundations etc.: If the rights remain with the university, this indicates that there is no contract research. You can assume that you will not have to pay turnover tax.
• “Mittelbare Zuwendungen”, i.e. funding for the benefit of a third party (e.g.: sub-orders placed by a business in the context of a federally or EU-funded project): Usually, this involves an exchange of services so that turnover tax must be paid. However, in these cases the university is entitled to deduct pre-tax. This means that turnover tax will only have to be paid on the project’s staff expenses. Due to pre-tax deductions, turnover tax on material resources is passed through.
• Industrial orders: What is important in these cases is who has the rights to the research results. If all rights remain with the university, i.e. if the industry partner is merely granted an option on an exclusive licence, there is no contract research, which means that the order is exempt from turnover tax.
• EU research: Must be assessed on a case-by-case basis by reference to the contract and/or consortium agreement. Usually, the results remain with the university, which means that the research in question is basic research and, as such, exempt from turnover tax.

Note: your local tax office is responsible for carrying out a legally binding evaluation. The Division of Financial Affairs clarifies unclear cases with the tax office.

Special provisions for managing taxable projects:

• Contract research belongs to title group 97.
• Since contract research is subject to turnover tax, the university must access the funds by invoice (net amount plus VAT). Invoicing is organised centrally and authorised by Project Administration.
• On receipt of money, the VAT amount is paid to the tax office. This is processed as a project expenditure using the cost type “0231 Mehrwertsteuer”. For projects instituted in 2012 or later, taxation is managed via the university’s central tax account.
• For material expenses that promote the project’s objective, pre-tax deductions can be asserted, i.e. VAT paid on the purchase can be re-claimed, thereby not causing additional costs. The following cost type applies: “0230 Vorsteuer”. The tax amount is booked separately using this cost type and balanced with the next tax declaration (every two months).
• Pre-tax deductions are only allowed for the purchase of goods that serve the objective of the project. Goods purchased for other purposes must not be financed with project funds.
• The invoice must be made out to the University of Konstanz. Otherwise we will not be able to claim pre-tax deductions. This also applies if a staff member working on the project has purchased the goods and would now like to have the costs reimbursed from project funds.
• Pre-tax deductions for equipment can only be claimed in full if the device in question is used for contract research 100% of its entire operating life.
• The pre-tax deduction must be included in the university's VAT return. However, at this point in time, these expenses can no longer be transferred (i.e. they would have to be considered in the next tax declaration at great effort).