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ECJ C-141/20 (Norddeutsche Gesellschaft für Diakonie mbH) – AG Opinion – VAT group: Controlling member not necessarily representative of VAT group

On January 13, 2022, the ECJ issued the AG Opinion in the case C-141/20 (Norddeutsche Gesellschaft für Diakonie mbH).

Context: Reference for a preliminary ruling – VAT – VAT groups – Designation of a member of a VAT group as the taxable person – Economic activities carried out independently – Judgment in Larentia + Minerva (C‑108/14 and C‑109/14)


Article in the EU VAT Directive

Article 4(1), 4(4), 21(1)(a), 21(3) of Sixth Council Directive (Articles 9(1), 10, 11, 193, 194, 205 of the EU VAT Directive 2006/112/EC)

Article 4 (Taxable person)

1 . ‘Taxable person’ shall mean any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity.

4. The use of the word ‘independently’ in paragraph 1 shall exclude employed and other persons from the tax in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationship of employer and employee as regards working conditions, remuneration and the employer’s liability. 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 organizational links.

Article 21 (Liability to pay VAT)

The following shall be liable to pay value added tax :
1 . under the internal system:

( a) taxable persons who carry out taxable transactions other than those referred to in Article 9 (2 ) (e) and carried out by a taxable person resident
abroad. When the taxable transaction is effected by a taxable person resident abroad Member States may adopt arrangements whereby tax is payable by someone other than the taxable person residing abroad. Inter alia a tax representative or other person for whom the taxable transaction is carried out may be designated as such other person. The Member States may also provide that someone other than the taxable person shall be held jointly and severally liable for payment of the tax;


Facts

The applicant is a limited liability company. Its partners are A (who owns 51% of the share capital) and C e. V. (who owns 49% of the share capital). A is a public body under public law. C eV is a registered association. The applicant’s sole director in 2005 (the year at issue) was E, who was at the same time sole director of A and director-director of C eV. During an on-the-spot check at the applicant’s premises, the defendant came to the conclusion that there was no fiscal unity between the applicant and A in the year at issue, as there was no financial link between the applicant and A’s company. As the holder of 51% of the applicant’s share capital, although A had a majority interest, however, due to the provisions of the partnership agreement, it did not hold the majority of the voting rights, so that it was not in a position to direct the applicant’s decision-making. The tax court at first instance upheld the appeal subsequently lodged. This decision is the subject of an appeal on a point of law brought by the defendant before the referring court. The parties disagree whether, in the year at issue, there was a fiscal unity for turnover tax between A, as an umbrella body, and the applicant, as a subordinate entity. The tax court at first instance upheld the appeal subsequently lodged. This decision is the subject of an appeal on a point of law which the defendant brought before the referring court. The parties disagree as to whether, in the year at issue, there was a fiscal unity for turnover tax between A, as an umbrella body, and the applicant, as a subordinate entity. The tax court at first instance upheld the appeal subsequently lodged. This decision is the subject of an appeal on a point of law which the defendant brought before the referring court. The parties disagree whether, in the year at issue, there was a fiscal unity for turnover tax between A, as an umbrella body, and the applicant, as a subordinate entity.

Consideration:

Under national law, the action on a ‘revision’ would be well-founded, as there is no question of the financial link in the form of the majority of the voting rights required under the German law on turnover tax to constitute a fiscal unity. The Court has held that Article 4 (4) of Directive 77/388 is to be interpreted as precluding national legislation which reserves the possibility of forming a VAT group for entities which, through a relationship of subordination are associated with the umbrella body of this group, except where that requirement is necessary and appropriate to achieve the objective of preventing abuse or of the objective of combating tax evasion or avoidance, which must be ascertained by the referring court. The referring court has doubts whether – and if so, under what conditions – a Member State can derogate from this. It follows from the case-law of the Court that, in the year at issue, it may have been lawful, by way of derogation from the second subparagraph of Article 4 (4) of Directive 77/388, to designate a taxable person other than the VAT group for the purpose of abusive and tax fraud or avoidance. According to the referring court, it is not clear to what extent abuse and tax evasion or avoidance can be prevented by classifying a member of the VAT group as a taxable person instead of the VAT group. It is therefore doubtful whether this justification allows a deviation. If it appears from the answer of the Court to the first question referred that this is not permitted under EU law, then, according to the referring court, it is also doubtful whether an individual can rely on the national legal consequence contrary to EU law. Furthermore, in assessing whether the national condition of financial affiliation is necessary, it is not clear how strict is the standard to be used in assessing the necessity of the national derogation. Finally, according to the referring court, a question should also be referred for a preliminary ruling on the first subparagraph of Article 4 (1) and (4) of Directive 77/388, since the national approach to the reasoning for the fiscal unity is self-sufficient and could therefore be justified as an

Source Minbuza.nl


Questions

Is the second subparagraph of Article 4(4) in conjunction with Article 21(1)(a) and Article 21(3) of Sixth Council Directive 77/388/EEC 1 of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes (Directive 77/388/EEC) to be interpreted as permitting a Member State to designate, instead of the VAT group (‘Organkreis’, group treated as a single entity for tax purposes), a member of the VAT group (‘Organträger’, controlling company) as the taxable person?

If question 1 is answered in the negative: Can the second subparagraph of Article 4(4) in conjunction with Article 21(1)(a) and Article 21(3) of Directive 77/388/EEC be invoked in this regard?

Must a strict or lenient standard be applied in the assessment to be carried out in accordance with paragraph 46 of the Larentia + Minerva judgment 2 of the Court of Justice of 16 July 2015, C-108/14 and C-109/14 (EU:C:2015:496, paragraph 44 and 45), as to whether the requirement of financial integration contained in the first sentence of point 2 of Paragraph 2(2) of the Umsatzsteuergesetz (Law on turnover tax) constitutes a permissible measure which is necessary and appropriate for attaining the objectives seeking to prevent abusive practices or behaviour or to combat tax evasion or tax avoidance?

Are Article 4(1) and the first subparagraph of Article 4(4) of Directive 77/388/EEC to be interpreted as permitting a Member State to regard a person as not being independent within the meaning of Article 4(1) of Directive 77/388/EEC if that person is integrated into the undertaking of another undertaking (‘Organträger’, controlling company) in financial, economic and organisational terms in such a way that the controlling company is able to impose its will on the person and thus prevent the person from forming his own will, which diverges from that of the controlling company?


AG Opinion

The second subparagraph of Article 4(4) of 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 must be interpreted as allowing closely related persons, who are members of a VAT group, to be treated as a single taxable person for the purposes of VAT obligations.

However, that provision must be interpreted as precluding Member State legislation which designates solely the member controlling the group – which owns a majority of the voting rights and has a majority shareholding in the controlled company in the group of taxable persons – as the representative of the VAT group and the taxable person of that group, to the exclusion of the other group members.


Decision


Personal comments/VATupdate 

Interesting article by BDO about these developments was posted by us earlier HERE

But Germany is not the only country in which VAT group developments have occured.

For more posts about VAT groups, simply click on the tag below – or press HERE.


Source


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