Comments on ECJ C-796/23: VAT Liability Doesn’t Require Separate Legal Personality

Legal Personality and VAT: Advocate General Kokott of the CJEU has determined that a taxpayer does not need to possess its own legal personality for VAT to be applicable; however, they must have legal capacity.
Case Background: The case involves Česká síť s.r.o., which collaborates with U.S.-based companies providing internet access in the Czech Republic. The Czech tax authorities classify Česká síť and its branches as a ‘civil company’ without legal personality, making Česká síť liable for VAT on behalf of the entire entity.
Independent Economic Activity: The Advocate General emphasized that an economic activity is considered ‘independent’ if the taxpayer operates in their own name, regardless of any internal agreements, indicating that compliance with VAT regulations is based on outward actions rather than internal arrangements.

A VAT taxpayer must have legal capacity; civil law partnerships need clear transaction responsibility

Legal Capacity and VAT Taxpayer Status: The Advocate General concluded that a VAT taxpayer must be an entity with legal capacity under domestic law. Specifically, a civil law partnership can only qualify as a VAT taxpayer if it possesses legal capacity, which enables it to engage in economic activities independently.
Determining Transaction Responsibility: In cases involving civil law partnerships, it is crucial to identify whether transactions are conducted by the partnership itself or its individual partners. The decisive factor is which entity acts externally to counterparties, as only those with legal capacity can establish legal relationships and enforce rights and obligations.
Implications for Designated Partners: The opinion raises questions about the validity of appointing a designated partner responsible for VAT obligations within a civil partnership, suggesting that this arrangement may not align with the VAT Directive. The determination of liability for VAT will depend on whether the partnership or the individual partners are deemed to engage in the economic activity.