The Hague Court of Appeal has ruled that the territorial limitation of the fiscal unity for turnover tax is not in conflict with the freedom of establishment.
X, a tax entity for turnover tax, is established in the Netherlands and mainly provides services in the insurance sector. X is part of a cross-border group, whose parent company is located in Germany. The parent company established in Germany passes costs on to X for (management) services provided. X paid an amount of reverse charge VAT on those costs on the return. X has a pro rata right to deduction of 2%, so that on balance only that percentage of the reverse-charged turnover tax can be deducted as input tax. X argues that there is an obstacle to the freedom of establishment, since it cannot form a fiscal unity with the parent company established in Germany. Due to the territorial boundaries of the fiscal unity, it is confronted with a tax levy that would otherwise not have occurred. After all, in a fiscal unity, mutual services are not taxed.
The Hague Court rules, like the District Court, that X is not hindered in its right to free establishment, which it derives from Article 49 TFEU, by the territorial effect of Art. 11 of the VAT Directive. In this context, the Court of Appeal discusses the judgment of the CJEU of 11 March 2021, UN 2021/13.15 (Danske Bank). In the judgment, the CJEU explicitly considers that a Member State is not allowed to include persons established outside its own territory as part of a fiscal unity. X’s appeal is unfounded.
Source Taxlive.nl
