Roadtrip through ECJ Cases – Focus on ”VAT Grouping” (Art. 11)

Relevant article in the EU VAT Directive

Article 11
After consulting the advisory committee on value added tax (hereafter, the “VAT Committee”), each Member State may regard as a single taxable person any persons established in the territory of that Member State who, while legally independent, are closely bound to one another by financial, economic and organisational links.

A Member State exercising the option provided for in the first paragraph, may adopt any measures needed to prevent tax evasion or avoidance through the use of this provision.

Corresponds to Article 4(4) of the Sixth VAT Directive

ECJ Cases Decided

Joined Cases C-181/78 , C-229/78
C-162/07 (Ampliscientifica and Amplifin) – Application of VAT grouping requires prior consultation by that State of the VAT Committee
C-480/10 (Commission v Sweden) – Sweden may limit VAT grouping to providers of financial services and insurance services
C-74/11 (Commission v Finland) – A VAT Group can be limited to the financial and insurance sector
C-7/13 (Skandia) – Judgment – Supply of services between head office and branch part of VAT group constitutes a taxable transaction
- Article 11 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the branch of a company constituted in compliance with the law of a third country cannot, independently of that company, be registered in a group formed by several companies regarded as a single taxable person for value added tax and constituted in the Member State in which it is established. The supplies of services taking place between the main establishment and the branch do not constitute taxable transactions for the purposes of value added tax, unlike the supplies of services taking place between the branch and its customers, whether or not these are members of the group.
C-108/14 and C-109/14 (Larentia + Minerva) – VAT paid by holding companies for the acquisition of capital invested in their subsidiaries
- The second subparagraph of Article 4(4) of Sixth Directive 77/388, as amended by Directive 2006/69, must be interpreted as precluding national legislation which reserves the right to form a value added tax group, as provided for in those provisions, solely to entities with legal personality and linked to the controlling company of that group in a relationship of subordination, except where those two requirements constitute measures which are appropriate and necessary in order to achieve the objectives seeking to prevent abusive practices or behaviour or to combat tax evasion or tax avoidance, which it is for the referring court to determine.
- Article 4(4) of Sixth Directive 77/388, as amended by Directive 2006/69, may not be considered to have direct effect allowing taxable persons to claim the benefit thereof against their Member State in the event that that State’s legislation is not compatible with that provision and cannot be interpreted in a way compatible with it.
C-340/15 (Nigl and Others) – Partnerships marketing products under a common brand name and through a limited liability company – Concept of independent undertakings
C-812/19 (Danske Bank) – Head Office part of VAT group & its Branch are separate taxable persons
- Article 9 (1) and Article 11 of Council Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that, for the purposes of value added tax (VAT), the main establishment of a company, located in a Member State and forming part of a VAT group established on the basis of this article 11, and the branch of this company, established in another Member State, must be considered as separate taxable persons when that main establishment provides the said branch with services for which it charges it.
C-868/19 (M-GmbH) – Decision – Members of a partnership and the head entity can form a VAT group
- Article 11 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in the light of the principles of legal certainty, proportionality and fiscal neutrality, must be interpreted as precluding national legislation which makes the possibility for a partnership to form, together with the undertaking of the head body, a group of persons which may be regarded as a single taxable person for value added tax purposes subject to the condition that the members of the partnership, together with the head body, must be able to pay value added tax, which makes the possibility for a partnership to form, together with the undertaking of the head body, a group of persons who may be regarded as a single taxable person for value added tax purposes, subject to the condition that the members of the partnership, together with the head body, are only persons who are financially integrated in that undertaking.
C-141/20 (Norddeutsche Gesellschaft für Diakonie mbH) – VAT group: Controlling member may be the only representative of a VAT group
- The Court ruled that the second subparagraph of Article 4(4) of the Sixth Directive allows Member States to designate a controlling company of a VAT group as a single taxable person, provided that it can impose its will on the other members and that this designation does not lead to tax losses.
- The Court determined that national legislation requiring a controlling company to have both a majority of voting rights and shareholding to form a VAT group is incompatible with the Sixth Directive, as it imposes unnecessary restrictions beyond the directive’s provisions.
- Additionally, the Court clarified that Member States cannot classify entities as non-independent simply because they are integrated into a controlling company of a VAT group, as these entities can still carry out independent economic activities despite their close financial, economic, and organizational links.
C-269/20 (Finanzamt T) – Controlling company may be the only taxable person of a VAT group
- The Court ruled that the second subparagraph of Article 4(4) of the Sixth Directive allows Member States to designate a controlling company of a VAT group as a single taxable person, provided that it can impose its will on the other members and that this designation does not lead to tax losses.
- The Court determined that national legislation requiring a controlling company to have both a majority of voting rights and shareholding to form a VAT group is incompatible with the Sixth Directive, as it imposes unnecessary restrictions beyond the directive’s provisions.
- Additionally, the Court clarified that Member States cannot classify entities as non-independent simply because they are integrated into a controlling company of a VAT group, as these entities can still carry out independent economic activities despite their close financial, economic, and organizational links.
C-184/23 (Finanzamt T) – Supplies within VAT group are outside scope of VAT even if input VAT is limited
- The Court ruled that services provided for consideration between entities within the same VAT group, which are closely linked yet legally independent, are not subject to VAT, even if the recipient cannot deduct the input VAT due or paid.
- This interpretation is based on the provisions of the Sixth Directive, which allows Member States to treat such entities as a single taxable person, thereby exempting internal transactions from VAT obligations.
- The Court clarified that the risk of tax losses related to the inability of the recipient to deduct VAT does not affect the VAT treatment of services exchanged within the VAT group, reinforcing the principle that these internal transactions are not taxable.