Flashback on ECJ Cases C-480/10 (Commission v Sweden) – Sweden may limit VAT grouping to providers of financial services and insurance services

On April 25, 2013, the ECJ issued its decision in the case C-480/10 (Commission v Sweden).

Context: Failure of a Member State to fulfil obligations – Taxation – Directive 2006/112/EC – Article 11 – National legislation restricting the possibility of forming a group of persons which can be regarded as a single taxable person for VAT purposes to undertakings in the financial and insurance sector

Article in the EU VAT Directive

Article 11 in the EU VAT Directive 2006/112/EC.

Article 11 (Taxable persons – VAT Grouping)
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.

Facts & questions

By its application, the European Commission asks the Court to rule that, by restricting, in practice, the possibility of forming a group of persons which can be regarded as a single taxable person for value added tax purposes to suppliers of financial and insurance services (‘a VAT group’ and ‘VAT’ respectively), the Kingdom of Sweden has failed to fulfil its obligations under Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1; ‘the VAT Directive’).

The pre-litigation procedure and the proceedings before the Court

Taking the view that the provisions of the ML run counter to Article 11 of the VAT Directive in so far as they restrict the application of the VAT group scheme to suppliers of financial services and insurance services, on 23 September 2008 the Commission sent a letter of formal notice to the Kingdom of Sweden, requesting it to submit its observations.
In their reply of 19 November 2008 to that letter of formal notice, the Swedish authorities argued that the provisions of the ML do not breach the VAT Directive.
Not being satisfied with that reply, the Commission, on 20 November 2009, issued a reasoned opinion, to which the Kingdom of Sweden replied on 20 January 2010 stating that it maintained the position expressed in its reply to the letter of formal notice.
In those circumstances the Commission decided to bring the present action.

AG Opinion

In light of these considerations, I propose that the Court should declare that, (i) by restricting the availability of VAT grouping to the financial and insurance sectors, the Kingdom of Sweden has failed to fulfil its obligations under Article 11 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax and; (ii) order the Kingdom of Sweden to pay the costs and; (iii) order the Republic of Finland to support its own costs.

Decision

1. Dismisses the action;

2. Orders the European Commission to pay the costs;

3. Orders Ireland and the Republic of Finland to bear their own costs.

Summary

The CJEU has ruled that Sweden may – in order to combat tax fraud and avoidance – limit the formation of a fe to providers of financial services and providers of insurance services.

Under Swedish law, only financial service providers and insurance service providers can form a fiscal unity (fe) for VAT purposes. According to the European Commission (EC), Sweden has thereby failed to fulfill its obligations under Art. 11 EU Directive 2006/112. The EC therefore requests the European Court of Justice (CJEU) to determine that Sweden has not complied with its obligations.

The CJEU has ruled that Sweden does not violate EU law by allowing only providers of financial services and providers of insurance services to form a VAT fee. The CJEU considers that Sweden has argued that the prevention of tax fraud and avoidance is the basis for the decision to limit the formation of a fe to companies that are directly or indirectly supervised by the Inspectorate of Finance and are therefore subject to government control. . According to the CJEU, the EC has not convincingly demonstrated that this measure was not justified in view of the objective of combating tax fraud and avoidance. The ECJ rejects the EC’s appeal.

Source