Flashback on ECJ Cases – C-162/07 (Ampliscientifica and Amplifin) – Application of VAT grouping requires prior consultation by that State of the VAT Committee

On May 8, 2008, the ECJ issued its decision in the case C-162/07 (Ampliscientifica and Amplifin).

Context: Sixth VAT directive – Taxable persons – Second subparagraph of Article 4(4) – Parent companies and subsidiaries – Implementation by the Member State of the single taxable person scheme – Conditions – Consequences

Article in the EU VAT Directive

Article 4(4) of the Sixth VAT Directive

The second subparagraph of Article 4(4) of the Sixth Directive is worded as follows:

‘Subject to the consultations provided for in Article 29, each Member State may treat as a single taxable person persons established in the territory of the country who, while legally independent, are closely bound to one another by financial, economic and organisational links.

Facts

The dispute in the main proceedings concerns the tax declarations submitted by Ampliscientifica for 1990 and by Amplifin for 1990 and 1991 (‘the contetsted declarations’). Ampliscientfica and Amplifin are companies incorporated under Italian law which formed part of the Amplifon group, which was engaged in the research and development of new scientific instruments.
More than 50% of the share capital of Amplifscientifica, which was formed in February 1989, was subscribed by Amplaid SpA, 99% of which was in turn controlled by Amplifin. Ampliscientifica’s business ceased in February 1993. For the 1990 tax year, Amplifin submitted to the Milan VAT office the declaration provided for under the 1979 Decree, after making an entry in its accounts transferring a VAT debt for which Ampliscientifica had previously been liable. For the 1991 tax year, it did the same with another of its subsidiaries that was involved in the real estate sector, Ampliare Srl, formed in November 1990, which resulted in a significant VAT credit being transferred to it.
The Milan VAT office took the view that Amplifin was not entitled to submit the contested declarations, since Article 2 of the 1979 Decree provides that, in order for the simplified VAT payment scheme to be applicable, the link between the parent company or body and the subsidiary company must have existed ‘from the beginning of the calendar year’ preceding the year in which the declaration was made. It therefore issued notices of additional assessment for 1990 (in respect of the VAT debt of Ampliscientifica) and 1991 (in respect of the VAT credit of Ampliare Srl).
Ampliscientfica and Amplifin challenged those notices before the Commissione tribuatria provinciale di Milano (Provincial Tax Court, Milan), which granted their applications in separate judgments on 5 November 1996.

Questions

1. Must the last paragraph of Article 4(4) of Council Directive 77/388/EEC ¹ of 17 May 1977 be construed as a rule that is insufficiently precise, with the effect that the Member States are permitted to apply the VAT scheme set out in that rule to specific situations involving economic, financial or legal links among different persons, or as a rule that is sufficiently precise and which, therefore, once a Member State has decided to adopt that scheme, requires provision to be made for it to be applied in all cases involving the links set out in that rule?

2. (i) Regardless of the reply to be given to question (1), is the imposition of a temporal restriction – in the sense that the link must have existed for a significant period of time – as a precondition for the application of the scheme, where the persons concerned are not permitted to demonstrate that there is a valid economic reason for the link being forged, disproportionate in relation to the objectives of the directive and to the need for compliance with the principle prohibiting the abuse of rights? (ii) Is that legislation to be regarded in any event as contrary to the principle of the neutrality of VAT?

AG Opinion

None

Decision

1. The second subparagraph of Article 4(4) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment is a provision which, in order to be implemented by a Member State, requires prior consultation by that State of the Advisory Committee on value added tax and the adoption of national legislation authorising persons, in particular companies, established in the territory of the country who, while legally independent, are closely bound to one another by financial, economic and organisational links, no longer to be treated as separate taxable persons for the purposes of value added tax in order to be treated as a single taxable person to whom a single value added tax identification number is allocated and, accordingly, the sole person entitled to submit value added tax declarations. It is for the national court to determine whether national legislation, such as that at issue in the main proceedings, satisfies those criteria, subject to the qualification that, where there has been no prior consultation of the Advisory Committee on value added tax, national legislation which meets those criteria constitutes legislation adopted in breach of the procedural requirement laid down in the second subparagraph of Article 4(4) of Sixth Directive 77/388.

2. The principle of fiscal neutrality does not preclude national legislation which simply treats taxable persons wishing to opt for a mechanism to simplify value added tax declarations and payments differently according to whether the parent company or body has held more than 50% of the share capital or stock of the persons with whom it is linked since at least the beginning of the calendar year preceding that in which the declaration was made or, on the contrary, satisfies those conditions only after that date. It is for the national court to determine whether national legislation, such as that at issue in the main proceedings, constitutes such a provision. Moreover, neither the principle prohibiting the abuse of rights nor the principle of proportionality precludes such legislation.

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