ECJ C-184/23 (Finanzamt T) – AG Opinion – Supplies within VAT group are outside scope of VAT even if input VAT is limited

On May 16, 2024, the ECJ released the AG Opinion in the case C-184/23 (Finanzamt T)

Context: Turnover tax – Second subparagraph of Article 4(4) of Directive 77/388 – Authorisation of Member States to treat as a single taxable person persons established in their territory who, while legally independent, are closely bound to one another by mutual financial, economic and organisational links – Article 6(2)(b) of Directive 77/388 – Pursuit of an activity in the exercise of powers as a public authority alongside the pursuit of an economic activity

Article in the EU VAT Directive

Articles 2(1) and 4(4) of the Sixth VAT Directive (Articles 2(1), 11 of the EU VAT Directive 2006/112/EC).

Article 2 (Taxable transactions)
1. The following transactions shall be subject to VAT:
(a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;
(b) the intra-Community acquisition of goods for consideration within the territory of a Member State by:
(i) a taxable person acting as such, or a non-taxable legal person, where the vendor is a taxable person acting as such who is not eligible for the exemption for small enterprises provided for in Articles 282 to 292 and who is not covered by Articles 33 or 36;
(ii) in the case of new means of transport, a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT pursuant to Article 3(1), or any other non-taxable person;
(iii) in the case of products subject to excise duty, where the excise duty on the intra-Community acquisition is chargeable, pursuant to Directive 92/12/EEC, within the territory of the Member State, a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT pursuant to Article 3(1);
(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;
(d) the importation of goods.

Article 11 (Taxable person)
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 – Summary

The applicant is a foundation that governs a university with a school of medicine and provides taxable patient care services while also performing non-taxable tasks as a public authority in student teaching.
The applicant is the tax group parent of U-GmbH, which provides cleaning services across the university’s premises for both patient care and student teaching.
The Tax Office viewed the applicant’s operations as a single undertaking and calculated a higher liability to turnover tax due to a benefit in kind generated by the cleaning services provided in the public authority sphere.
The administrative appeal was unsuccessful, but the Finanzgericht upheld the action, stating that there is a tax group relationship between the applicant and U-GmbH, but no benefit in kind exists. The defendant is challenging this judgment through an appeal on a point of law.

Facts – Detailed

The applicant is a foundation governed by public law and the controlling company of a university comprising, inter alia, a school of medicine. It is a taxable person and provides services for consideration (patient care). At the same time, as a legal person governed by public law, it performs tasks in the exercise of its powers as a public authority (student teaching), in respect of which it is not considered to be a taxable person.
The applicant is the ‘Organträger’ (tax group parent), within the meaning of Paragraph 2(2), point 2, of the UStG, of U-GmbH. U‑ GmbH provided, inter alia,
cleaning services for the applicant. It provided those services across the complex of buildings comprising the university school of medicine, that is to say on those of the school’s premises which are devoted to patient care (patients’ rooms, corridors and operating theatres) and are thus to be classified as falling within the applicant’s economic sphere of activity, in which it operates as a taxable person, and on the premises falling within the sphere of activity in which the applicant exercises its powers as a public authority, that is to say premises used for student teaching (lecture theatres and laboratories), in respect of which it is not considered to be a taxable person.
Following an external audit, the Finanzamt (Tax Office) formed the view that the applicant’s operations constituted a single undertaking. In that connection, the Finanzamt regarded the cleaning services which U‑ GmbH provides within the sphere of activity in which the applicant exercises its powers as a public authority as supplies effected within the ‘Organschaft’ (tax group) that exists between the applicant and UmbH. In the opinion of the Finanzamt, the cleaning services form part of an activity pursued for purposes other than those of the business and generate a benefit in kind to the applicant, in accordance with Paragraph 3(9a), point 2, of the UStG (Article 6(2)(b) of Directive 77/388). On the basis of the proportion of surfaces cleaned within the sphere of activity in which the applicant exercises its powers as a public authority, the Finanzamt calculated a higher liability to turnover tax. The administrative appeal lodged against that calculation was unsuccessful.
The Finanzgericht upheld the action [brought against the rejection of the administrative appeal]. It held that there is in this case an ‘Organschaft’ (tax group) resulting in the consolidation of the applicant, as ‘Organträgerin’ (tax group parent) and U-GmbH, as ‘Organgesellschaft’ (subsidiary), into a single undertaking. That tax group relationship extends to the activities which the applicant carries out in the exercise of its powers as a public authority. The conditions governing the existence of a benefit in kind within the meaning of Paragraph 3(9a), point 2, of the UStG, however, are not met. It is that judgment which the defendant is challenging by its appeal on a point of law to the referring court.

Questions

1. Does the bringing together of several persons into a single taxable person, as provided for in the second subparagraph of Article 4(4) of Directive 77/388/EEC, have the effect of removing supplies of goods or services made for consideration between those persons from the scope of value added tax as defined in Article 2(1) of that directive?
2. Do supplies of goods or services made for consideration between those persons fall within the scope of value added tax in any event in the case where the recipient of the supply of goods or services is not (or is only partly) entitled to deduct input tax, as there is otherwise a risk of tax losses?

AG Opinion

Art. 2 no. 1 and Art. 4 para. 4 subpara. Article 2(2) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 2000/65/EC of 17 October 2000

must be interpreted as meaning that:

services for consideration between persons who are part of an association of legally independent persons who are closely linked by mutual financial, economic and organisational relations pursuant to the second subparagraph of Article 4(4) of the Charter. 2 of the Sixth Directive 77/388, as amended by Directive 2000/65, do not fall within the scope of VAT, even if the customer is not entitled to deduct input VAT (or is entitled only partially).

Decision

Summary

Source