ECJ C-796/23 (Česká síť) – AG Opinion – Taxable persons need legal capacity but not legal personality

On July 3, 2025, the ECJ issued the AG Opinion in the case C-796/23 (Česká síť).

Context: Request for a preliminary ruling – Tax legislation – Value added tax – Directive 2006/112/EC – Article 9(1) – Concept of taxable person – Legal capacity – Allocation of turnover to a taxable person – Joint action by several persons as members of a ‘society’ that does not have legal personality – Determination of the person liable for payment of the tax

Summary

Facts of the Case: The case (C-796/23) involves Česká síť s. r. o. disputing its VAT liability based on a national law that assigns tax obligations to a designated partner in a society without legal personality. The case examines whether this arrangement aligns with EU VAT legislation.
Questions to the Court: The referring court sought clarification on whether EU VAT law permits a designated partner to be solely liable for VAT, despite another partner engaging directly with customers, and if the VAT law allows for a system where a society is treated as a single taxable entity.
Court’s Decision on Taxable Person: The Court ruled that a taxable person does not need legal personality but must have legal capacity, meaning they must act independently in their own name. This ruling allows for multiple partners in a society to be recognized as individual taxable persons.
Justification for the Decision: The Court emphasized that determining tax liability should focus on the independence of economic activities, irrespective of internal agreements. Each partner’s actions with third parties establish their status as taxable persons, ensuring compliance with the VAT Directive.
Implications of the Ruling: The decision clarifies that VAT obligations can be allocated to partners individually rather than collectively to a society, promoting fairness in tax treatment and reinforcing the principle that legal capacity, not just legal personality, is essential for tax liability.

Articles in the EU VAT Directive 2006/112.EC

Article 9(1): This article defines a “taxable person” as any person who independently carries out any economic activity, regardless of the purpose or results of that activity. It emphasizes that a taxable person can be an individual or legal entity that engages in an economic activity.
Article 193: Article 193 specifies that VAT is payable by any taxable person carrying out a taxable supply of goods or services, except in certain cases where VAT is payable by another person. This article is central to the discussion on who is liable for the VAT in relation to the transactions carried out by the society and its partners.
Article 28: This article pertains to the legal fiction regarding the supply of services, stating that when a taxable person acts on behalf of another in a supply of services, they are deemed to have received and supplied those services themselves. While not the primary focus, it may be relevant in considering the nature of the transactions and the relationships between the partners.

Facts

Parties Involved:
- Applicant: Česká síť s.r.o., a limited liability company based in the Czech Republic.
- Defendant: Odvolací finanční ředitelství (Appellate Tax Directorate).
Background:
- In November 2020, the Tax Office for the Pilsen Region issued additional VAT assessments against Česká síť s.r.o. for the tax period of January to December 2017, totaling CZK 368,556, along with penalties amounting to CZK 73,704.
- The assessments were based on the claim that Česká síť s.r.o. was part of a “society,” a legal entity without legal personality, formed with several US corporations operating in the Czech Republic.
Nature of the Society:
- The tax authorities concluded that a de facto society existed due to the connections between Česká síť and the US corporations (CESKA SIT OPTICS LLC, KDYNSKY INTERNET LLC, and CESKA SIT LLC), which provided services (like internet connections) to end customers.
- The sole partner and executive representative of Česká síť s.r.o. also managed the branch offices of the US corporations, thereby intertwining their operations.
VAT Assessment:
- The tax authorities determined that under Czech VAT law, the designated partner (Česká síť s.r.o.) was responsible for paying the VAT on all transactions conducted by the society, including those conducted by the US corporations’ branch offices.
- The assessments included revenues from both Česká síť s.r.o. and the branch offices of the US corporations, leading to additional tax liability for the complainant.
Legal Challenge:
- Česká síť s.r.o. appealed the assessments, arguing that the special VAT arrangement for societies was incompatible with EU law (Council Directive 2006/112/EC).
- The company contended that it should only be liable for VAT on its own transactions and not for those conducted by the other partners in the society.
Court’s Consideration:
- The Supreme Administrative Court of the Czech Republic sought clarification from the Court of Justice of the European Union on whether the requirement for the designated partner to pay VAT on the entire society’s transactions was consistent with EU VAT law.
- The court expressed concerns about the implications of the current VAT arrangements for the proper attribution of VAT liability among partners in a society.

Question

Is a situation in which, pursuant to special national value added tax arrangements for ‘societies’ (associations of persons that do not have legal personality), a ‘designated partner’ is liable for the payment of the VAT for the entire society, despite the fact that another partner had dealt with the end customer in relation to the supply of services, compatible with Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, in particular with Article 9(1) and Article 193 of the Directive?

Does the compatibility of the situation with Directive 2006/112/EC depend on whether the other partner had overstepped the rules of representing the society and dealt in his, her or its own name with the end customer?

AG Opinion

Article 9(1) and Article 193 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax

must be interpreted as meaning that a taxable person is not required to have its own legal personality but must have its own legal capacity. The economic activity is carried out ‘independently’ where the taxable person is acting in his or her own name. This results from the actions and dealings with third parties (outwardly). It is irrelevant for the purposes of VAT legislation whether it infringes internal agreements in that regard (such as, for example, a partnership agreement).

Source