A judgment of the Federal Finance Court has been in place since 2016, which seems to be unknown to many lawyers – AND – courts. By judgment of 21.12.2016, the latter had decided on the treatment of vat warnings under the UWG under VAT law and has since assumed that there would be a service of the warning to the competitor subject to VAT. From the BFH’s point of view, the service consists in avoiding a legal dispute, and the remuneration is the reimbursement of expenses paid by the admonisher. This leads to numerous other points, which must be taken into account in the context of an examination of a warning, but also, of course, in the warning itself.
Since this decision, which is very problematic in reality and in everyday life, which leads to a large rat tail of further problems from the VAT law, however, there has been a dispute as to whether the judgment is based on warnings under the Copyright Act or on warnings after applicable to the Trademark Act. This has now been decided by the Federal Finance Court.
By judgment of 13 February 2019 XI R 1/17, the XIth Senate of the Federal Finance Court (BFH) has transferred its established case law on warnings under the Unfair Competition Act to warnings under the Copyright Act and decided that warnings a right holder to enforce a copyright injunction against infringers is liable to VAT. Compensation for the warning is also the amount paid by the infringer.
The plaintiff, a recording producer, used a hired law firm to warn people who had illegally distributed audio recordings on the Internet. Against the signing of a declaration of injunction and commitment subject to penalties and payment of a lump sum of € 450 (net), it offered to refrain from pursuing its claims in court. It took the view that the payments received were to be regarded as compensation for the infringements of copyright and therefore did not infringe VAT. The VAT charged to her by the law firm was also deducted – of course – as a pre-tax.
However, the BFH once again failed to follow this view on the question of taxability. It has made it clear that, irrespective of the respective designation by the parties and the basis of civil law, warnings to enforce an injunction as services subject to VAT in the context of a VAT-convertible exchange of performance between the warning and the persons he has warned. According to the BFH, the warning was at least in the interests of the infringer, because he was given the opportunity to avoid a costly legal dispute. This must be regarded as another supply subject to VAT. Moreover, it was irrelevant to the conclusion that, at the time of the warning, it was not certain whether the warning would be successful: even if it was uncertain whether the person admonished was and would pay an infringer, there was a direct link between the law and the between the warning as another service and the payment received for it.
Companies can now claim VAT on both warnings from the UWG and copyright if the other conditions, such as proper invoicing, are met. If such a sum does not exist, there may be a right of retention for the sum to be paid. There are therefore other points to consider for both warnings and warnings.
By the way: The judgment is not an orbiter dictum and therefore – purely legally – does not apply to trademark law. However, there is no real reason for differentiation. This could be a way of defending against stubborn warnings.