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Germany: VAT group rules referred to CJEU

Germany: VAT group rules referred to CJEU

Germany’s Federal Tax Court (BFH) has referred to the CJEU a case concerning whether the requirements and legal consequences of value added tax (VAT) groups in Germany are compatible with EU law.

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The case identifying information is: XI R 16/18 (11 December 2019).

In terms of the domestic VAT law in Germany, the BFH’s view is that for the justification of a VAT group, it continues to be necessary that a superior and subordinate relationship exists between the controlling enterprise and the subordinate company as a “subordinated entity” (that there is integration with rights of intervention in line with the BFH decision of 2 December 2015, V R 15/14).

However, from an EU law point of view, the parties have disputed whether this VAT grouping rule must be adhered to. In this regard, the BFH has posed four questions to the CJEU for clarification:

  • Does EU law allow an EU Member State to determine that, rather than the VAT group, a member of the VAT group (the controlling enterprise) in question is the party liable for VAT?
  • If the first answer is negative, the next question is: can a taxable person invoke EU law?
  • If the EU Member State (Germany) is entitled, by way of derogation from EU law, to determine that the controlling enterprise is the one liable for VAT (in answer to the first question above), or if a taxable person is not able to invoke the fact that the national law may be contrary to EU law (in answer to the second question above), the BFH must evaluate whether the criterion of financial integration is also justified to avoid abuses and tax evasion and avoidance, although the controlling enterprise can also assert its rights in connection with the duty to pay tax for the subordinate company with the help of a legal suit against that company. In this respect, the BFH inquired whether a stricter or a more generous benchmark must be set down.
  • The fourth question in the submission is posed independently of the first three. One alternative legal justification of the German VAT group could arise from Art. 4 (1), (4) (1) of the Sixth EC Directive. Thus, the BFH asked the CJEU whether these regulations allow an EU Member State, as part of the classification to view an entity as not independent in line with Art. 4 (1) of the Sixth EC Directive, if it is financially, economically, and organizationally integrated into the company of another trader (controlling enterprise), in such a way that the controlling enterprise can assert its wishes at that entity and thus prevent a deviating expression of will at the entity.

Read an April 2020 report [PDF 305 KB] prepared by the KPMG member firm in Germany

The KPMG report also includes brief discussions about other VAT developments that may affect businesses in Germany:

  • Reduced VAT rate for food and beverage sector: Grand Coalition agrees to reduced VAT rate for the gastronomy industry from 1 July 2020 - 30 June 2021 (BMF, press release of 23 April 2020; German Hotel & Catering Federation, press release of 23 April 2020)
  • Rental and leasing contracts as a supply of goods or services (BMF, guidance of 18 March 2020, III C 2 - S 7100/19/10008 :003)
  • VAT measures relating to the impacts of coronavirus
  • CJEU referral on requirements for a fixed establishment in accordance with EU law (Federal Fiscal Court (Austria), resolution of 20 December 2019, RE/7100002/2019; CJEU ref: C-931/19 – Titanium Ltd)
  • European Commission publishes non-binding explanatory notes on the VAT quick fixes in all official languages (website of the European Commission)

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