The Federal Fiscal Court (BFH) has, on the one hand, changed its case law on financial integration with two decisions relating to the tax group and, on the other hand, sent a new request for a preliminary ruling to the Court of Justice of the European Union (ECJ). Both decisions were made after preliminary rulings by the ECJ.
With the judgment of January 18, 2023 – XI R 29/22 (XI R 16/18), the BFH sees the tax liability of the controlling company for the sales of the tax group resulting from Section 2 (2) No. 2 of the Value Added Tax Act (UStG) as opposed to earlier Doubts continue to be in conformity with Union law. The conditions specified by the ECJ for this (enforcement of the will and no risk of tax losses) are guaranteed because the BFH has already demanded the possibility of enforcing the will and the controlled company is liable for the VAT of the controlling company in accordance with Section 73 of the Fiscal Code.
With regard to the criterion of enforcing the will, however, the BFH is changing its case law on financial integration. For the existence of a tax group, it is still necessary in principle that the controlling company is entitled to the majority of the voting rights in the controlled company. However, financial integration is now also present if the shareholder only has 50% of the voting rights, but the necessary enforcement of his will in the controlled company is secured by the fact that he holds a majority interest in the capital of the controlled company and he is the only managing director of the controlled company .
The resolution of January 26, 2023 – VR 20/22 (VR 40/19) is intended to clarify whether the previous assumption of non-taxability, so-called internal sales, should be retained. This is the second request for a preliminary ruling in this matter, which is now about a question that has become dubious due to the first decision of the ECJ in these proceedings.
According to a case law founded one hundred years ago by the Reichsfinanzhof, which was later adopted by the legislator into the UStG, sales between the members of a tax group are not subject to VAT because the controlled company is regarded as a “dependent” part of the overall company of the higher-level controlling company. Doubts about this consideration arise from the fact that the ECJ regards the controlled company as independent and according to its case law the controlled company must not lead to the risk of tax losses. The latter could be affirmed if the controlling company receiving the service from the controlled company, as in the specific dispute, is not entitled to full input tax deduction.
If the ECJ decides that internal sales are taxable, contrary to the established BFH case law, this would have far-reaching consequences. In terms of VAT, the tax group serves as a design tool for entrepreneurs who are not entitled to full input tax deduction (e.g. banks and insurance companies, entrepreneurs in the health and social services and in the education sector and landlords of apartments). Previously, non-deductible input tax amounts could be avoided for such companies by establishing tax groups with service providers, so that the services received are not taxable.
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