On December 1, 2022 on the website of the Court of Justice of the European Union (CJEU) the judgment of the CJEU in Cases C-141/20 (Finanzamt Kiel versus Norddeutsche Gesellschaft für Diakonie mbH, ECLI:EU:C:2022:943) and C‑269/20 (Finanzamt T versus S, ECLI:EU:C:2022:944) was published.

In the Opinion of the Advocate General in Case C-141/20, which was delivered on January 13, 2022, the Advocate General stated that that Opinion should be read together with another Opinion the Advocate General was expected to present on January 27, 2022 in a parallel case, C‑269/20, Finanzamt T. Notably because the scope of the first question referred by the XI Chamber of the Bundesfinanzhof (Federal Finance Court) in Case C141/20 corresponds to the first question referred by the V Chamber of that court in Case C‑269/20.

 

Case C-141/20

 

The dispute in the main proceedings and the questions referred for a preliminary ruling

9     NGD mbH is a limited liability company incorporated under German law, formed by notarial act of 29 August 2005, the members of which, namely A, a public-law body and C eV, a registered association, have shareholdings of 51% and 49% respectively. In 2005, E, the manager of that company, was both the manager of A and the executive chairman of C eV.

10    Under Article 7(2) of the articles of association of NGD mbH, concerning the composition and voting rights of the general assembly:

‘The general assembly shall be composed of members of A’s charitable committee and of C eV’s main committee. Each member shall have seven votes and, at the general assembly, shall designate up to seven representatives who, in respect of that company, are to act exclusively on a voluntary basis. Subject to the following provisions, each representative shall have one vote and shall cast his or her vote in accordance with his or her own professional assessment, without being bound in that regard by the instructions of the member who appointed him or her.

An exception shall be made to the foregoing only in respect of resolutions which directly concern the contributions made available to the company by each member; in that case, the votes may be cast only in one bloc per member and the representatives shall be bound by the instructions given by the member who designated them. If the representatives fail to reach an agreement, the seven votes of the member concerned shall be deemed to be cast in the manner in which the majority of the representatives designated by the member voted’.

11    At a general assembly held on 1 December 2005, it was decided to amend the articles of association of NGD mbH and to word the second subparagraph of Article 7(2) as follows:

‘An exception shall be made to the foregoing only in respect of resolutions which directly concern the contributions made available to the company by each member or as regards decisions in respect of which a member seeks a bloc vote. In that case, the votes may be cast only in one bloc per member and the representatives shall be bound by the instructions given by the member who designated them. If the representatives fail to reach an agreement, the seven votes of the member concerned shall be deemed to be cast in the manner in which the majority of the representatives designated by the member voted. In the case of a bloc vote, the votes shall be assessed on the basis of the shareholding in the company’.

12    According to the explanations provided by the referring court, that amendment did not, however, take effect until after the general assembly of 9 December 2010, when the articles of association thus amended were the subject of a new notarial act and entered into the commercial register.

13    It is apparent from the order for reference that, during an audit carried out by an external auditor at NGD mbH, the auditor took the view that, for the tax year in question, NGD mbH was not integrated financially into the controlling company A. Accordingly, they could not be regarded as forming a ‘tax group’ within the meaning of Paragraph 2(2)(2) of the UStG, which is intended to implement, in German law, the option provided for in the second subparagraph of Article 4(4) of the Sixth Directive.

14    That conclusion was based on the fact that, in view of the provisions of Article 7 of the articles of association of NGD mbH, whether in its original or amended version, A did not have a majority of the voting rights and therefore was not in a position to impose decisions on that company, even though A held a majority holding of 51% of the share capital in it. Consequently, the turnover achieved by that company at the standard rate with third parties and from services supplied to A would have be accounted for by NGD mbH in its capacity as a ‘trader’ within the meaning of Paragraph 2(1) of the UStG.

15    By decision of 30 May 2014, the tax authority endorsed the external auditor’s position.

16    Since the objection made by NGD mbH against that decision was rejected by the tax authority’s decision of 3 February 2017, NGD mbH brought an action against that decision.

17    The Schleswig-Holsteinisches Finanzgericht (Finance Court of the Land of Schleswig-Holstein, Germany) upheld that action by judgment of 6 February 2018 and held that the condition relating to financial integration into the controlling company A was satisfied on the basis of both the amended version of the articles of association of NGD mbH and the original version, which was in force during the tax year in question.

18    In that regard, that court considered that it was apparent from the case-law of the Court of Justice that a relationship of subordination binding a company organically integrated into the controlling company is not a condition which is necessary for the constitution of a group made up of persons who are legally independent, but closely bound to one another by financial, economic and organisational links (‘the VAT group’) (judgment of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt, C‑108/14 and C‑109/14, EU:C:2015:496, paragraphs 44 and 45), and that, therefore, the tax authority’s requirement relating to the need for the controlling company to have, in addition to a majority shareholding, a majority of voting rights in the other entities forming part of the tax group, went beyond what was necessary to attain the objectives seeking to prevent abusive practices or behaviour or to combat tax evasion or tax avoidance.

19    The tax authority brought an appeal on a point of law against that judgment before the Bundesfinanzhof (Federal Finance Court, Germany), alleging infringement of the first sentence of Paragraph 2(2)(2) of the UStG, on the basis that NGD mbH was not integrated financially into the controlling company A.

20    The referring court states, first of all, that, if the dispute in the main proceedings were to be assessed solely in the light of the applicable national law, the appeal on a point of law would be well founded, given that that law makes the classification as a tax group dependent on the condition relating to financial integration, which requires the controlling company to have a majority of the voting rights. It states that, even after the judgment of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496), in accordance with the case-law of the Bundesfinanzhof (Federal Finance Court), the condition relating to the relationship of authority and subordination, which is now classified as an ‘integration together with rights to intervene’, continues to be required under the first sentence of Paragraph 2(2)(2) of the UStG.

21    Next, it is apparent from the case-law of the Bundesfinanzhof (Federal Finance Court) that, under national law, the tax debt is transferred to the controlling company, which must be able to satisfy itself that the turnover achieved by each of the entities forming part of the tax group is correctly taxed. Thus, the controlling company must act, as VAT collector, in respect of all the services which those entities provide to third parties and is the only entity in a position to draw up the tax return for all those entities.

22    Lastly, that court states that, in the context of the examination which it is required to carry out under the first sentence of Paragraph 2(2)(2) of the UStG, it is supposed to take into account and apply per se the fact that, according to that provision, the economic and professional activities of the entities integrated into the controlling company of the tax group of which those entities form part are not regarded as being carried out independently. Thus, all of the turnover achieved by those entities is attributed to the controlling company, which is liable for the VAT corresponding to all of that turnover.

23    However, the referring court has doubts as to whether the national legislation at issue in the main proceedings is compatible with the first subparagraph of Article 4(4) of the Sixth Directive, as interpreted by the Court, in view of, inter alia, the requirement relating to the relationship of authority and subordination under that legislation.

24    In particular, since it follows from the Court’s case-law that, where a VAT group is deemed to exist, it is the VAT group itself which is liable for the VAT corresponding to the turnover of all its members (judgments of 22 May 2008, Ampliscientifica and Amplifin, C‑162/07, EU:C:2008:301, paragraph 20, and of 17 September 2014, Skandia America (USA), filial Sverige, C‑7/13, EU:C:2014:2225, paragraphs 29, 35 and 37, and the operative part), the treatment of such a VAT group as a single taxable person, within the meaning of the second subparagraph of Article 4(4) of the Sixth Directive, precludes the members of that group, including its controlling company, from continuing to submit VAT declarations and from continuing to be identified as individual taxable persons.

25    If the Court were to rule that Article 4(4) of the Sixth Directive precludes the practice of designating, as a single taxable person, not the VAT group itself but a member of that group, namely its controlling company, the question then arises as to whether an entity forming part of that group may rely on the possible incompatibility of national law with EU law. In that regard, while stating that it follows from the judgment of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496), that Article 4(4) of the Sixth Directive does not have direct effect, the referring court asks whether such an entity could, in that regard, possibly rely on Article 21(1)(a) of that directive.

26    The referring court also raises the question of the level of requirements that are necessary, in the context of the assessment which it must carry out, in order to determine whether or not the criterion of financial integration under the first sentence of Paragraph 2(2)(2) of the UStG is satisfied in the present case. In particular, it asks whether that criterion must be interpreted as requiring the controlling company of the tax group to have, in addition to a majority shareholding in the entities which are part of that group, a majority of the voting rights in those entities.

27    It points out, in that regard, that, according to the applicable national rules, the controlling company of a tax group could, where appropriate, in legal proceedings, rely on a right to financial compensation from the other members of that group in order to ensure that, in the context of internal relations within it, the tax burden is borne by each of those members respectively in a manner corresponding to the turnover which generated the VAT to be paid in respect of each of them.

28    The referring court also asks whether the German system regarding a tax group (Organschaft) could possibly be justified, alternatively, by means of a reading of Article 4(1) of the Sixth Directive in conjunction with the first subparagraph of Article 4(4) of that directive. If that were the case, the appeal on a point of law brought by the tax authority would be well founded, irrespective of the answers to the first three questions referred for a preliminary ruling.

29    In that regard, the referring court considers, in essence, that it cannot be ruled out that the very strict criteria for the requirement of subordination of the entities forming a tax group to the controlling company of that group, required under German law, for the purposes of assessing the existence of a tax group, may be justified on the basis of a combined reading of the provisions referred to in the preceding paragraph.

30    In view of the fact that, under the applicable national rules, those entities are regarded as not having their own will, in so far as they are in a relationship of subordination to the controlling company of the tax group of which they form part, it must be considered that those entities do not satisfy the condition of independence within the meaning of Article 4(1) of the Sixth Directive. The Member States are entitled to take the view that entities which do not meet the criteria of independence cannot be regarded as taxable persons, since their respective turnover and, therefore, the corresponding VAT must thus be attributed to the controlling company, in view of the relationship of subordination between that controlling company and those entities.

31    However, the referring court expresses doubts as to whether the Member States are actually entitled to specify, by categorisation, the cases in which it must be considered that given entities do not have their own will and, therefore, are not independent within the meaning of Article 4(1) of the Sixth Directive.

32    In that regard, the referring court states that German constitutional law grants the national legislature such a power of categorisation, which is justified by the fact that, in so far as the determination of the status of taxable person entails financial burdens, the entities which have that status should not find themselves in a position of uncertainty as regards their tax obligations. Furthermore, the categorisation thus made by the German legislature could be supported by an interpretation of the first subparagraph of Article 4(4) of the Sixth Directive, carried out in the light of the context and origin of that provision.

33    On the latter point, account must also be taken of the fact that Annex A to Second Council Directive 67/228/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes – Structure and procedures for application of the common system of value added tax (OJ, English Special Edition, 1967(I), p. 16) had supposedly served to confer legitimacy, under EU law, on the pre-existing German system regarding a tax group arrangement, so that that Member State could retain that system.

34    In those circumstances, the Bundesfinanzhof (Federal Finance Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1)  Is the second subparagraph of Article 4(4) in conjunction with Article 21(1)(a) and Article 21(3) of [the Sixth Directive] to be interpreted as permitting a Member State to designate, instead of the VAT group [(“Organkreis”, group treated as a single entity for tax purposes)], a member of that group (controlling company) as the taxable person?

(2)   If the first question is answered in the negative: can the second subparagraph of Article 4(4) in conjunction with Article 21(1)(a) and Article 21(3) of [the Sixth Directive] be invoked in this regard?

(3)   Must a strict or lenient standard be applied in the assessment to be carried out in accordance with paragraph 46 of the judgment of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496, paragraphs 44 and 45), as to whether the requirement of financial integration contained in the first sentence of point 2 of Paragraph 2(2) of the [UstG] constitutes a permissible measure which is necessary and appropriate for attaining the objectives seeking to prevent abusive practices or behaviour or to combat tax evasion or tax avoidance?

(4)   Are Article 4(1) and the first subparagraph of Article 4(4) of [the Sixth Directive] to be interpreted as permitting a Member State to regard a person as not being independent within the meaning of Article 4(1) of [that directive] if that person is integrated into the undertaking of another undertaking (controlling company) in financial, economic and organisational terms in such a way that the controlling company is able to impose its will on the person and thus prevent the person from forming his [or her] own will, which diverges from that of the controlling company?’

 

Judgment

The CJEU (First Chamber) ruled as follows:

1. The second subparagraph of Article 4(4) 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 not precluding a Member State from designating, as a single taxable person of a group formed by persons who are legally independent but closely bound to one another by financial, economic and organisational links, the controlling company of that group, where that controlling company is in a position to impose its will on the other entities forming part of that group and provided that that designation does not entail a risk of tax losses.
2. The second subparagraph of Article 4(4) of Sixth Directive 77/388, as amended by Directive 2000/65, must be interpreted as precluding national legislation which makes the possibility for a given entity to form, with the undertaking of the controlling company, a group formed by persons who are legally independent but closely bound to one another by financial, economic and organisational links conditional upon that controlling company having, in that entity, a majority of the voting rights in addition to a majority holding in the share capital of that entity.
3. The second subparagraph of Article 4(4) of Sixth Directive 77/388, as amended by Directive 2000/65, read in conjunction with the first subparagraph of Article 4(1) of Directive 77/388, as amended, must be interpreted as precluding a Member State from classifying, by categorisation, given entities as non-independent, where those entities are integrated, in financial, economic and organisational terms, into the controlling company of a group formed by persons who are legally independent but closely bound to one another by financial, economic and organisational links.

 

The full text of the judgment of the CJEU in Case 141/20 as published on the website of the CJEU can be found here.

Case C-269/20

 

The dispute in the main proceedings and the questions referred for a preliminary ruling

11    S, a German foundation governed by public law, is the controlling company of both a university medicine department and U-GmbH. S is liable for VAT in respect of the services which it supplies for consideration, whilst not being regarded as a taxable person for the activities which it carries out in the exercise of its powers as a public authority.

12    For the tax year in question in the main proceedings, U-GmbH provided S with cleaning, hygiene and laundry services, as well as patient transport services. As regards, in particular, the cleaning services, they were supplied for all of the building complex forming the university medicine department, which includes patients’ rooms, corridors, operating theatres, lecture rooms and laboratories.

13    It is apparent from the explanations provided by the referring court that, first, the hospital area, as such, in so far as it is dedicated to patient care, falls within the exercise of the economic activities carried out by S, for which S is liable for VAT. Second, the lecture rooms, laboratories and other premises are used for the teaching of students, an activity which that foundation carries out in the exercise of its powers as a public authority and in respect of which it is not considered to be liable for that tax. The proportion of the surface area of the building complex in question, for which cleaning services were supplied in respect of the latter type of activity, amounts to 7.6% of the total surface area of that building complex. For its services, U-GmbH received remuneration amounting to EUR 76 085.48 from S.

14    Following an audit, the tax authority adjusted S’s tax assessment for the tax year in question, taking the view that S’s establishments formed a single undertaking for which a single VAT return had to be drawn up and, therefore, a single tax assessment had to be issued.

15    According to the tax authority, the cleaning services received by S in respect of activities falling within its powers as a public authority were supplied to it by U-GmbH as part of the tax group (Organschaft) which those entities formed, for the purposes of Paragraph 2(2)(2) of the UStG, which is intended to implement, in German law, the possibility, provided for in the second subparagraph of Article 4(4) of the Sixth Directive, of treating as a single taxable person persons who are legally independent but closely bound to one another by financial, economic and organisational links.

16    Accordingly, those cleaning services thus supported an activity other than that of the business and generated a ‘benefit in kind’ to S, in accordance with Paragraph 3(9)a(2) of the UStG, read in the light of Article 6(2)(b) of the Sixth Directive.

17    In the light of those factors, the tax authority formed the view, taking into account the 7.6% proportion of the surface area of the building complex in question, attributed to the activities carried out by S in the exercise of its powers as a public authority, that the sum corresponding to the cleaning of that proportion of the surface area by U-GmbH was EUR 5 782.50. After deduction of a profit mark-up, assessed at EUR 525.66, the tax authority set the taxable amount for the ‘benefit in kind’ at EUR 5 257 and thus increased the tax charge by EUR 841.12.

18    The rejection of the administrative complaint lodged by S against that amended tax notice was the subject of an action before the Finanzgericht (Finance Court, Germany). That court upheld that action, stating, in essence, that the tax group (Organschaft) which brought together, in a single undertaking, the controlling company S and U-GmbH, as a controlled company, also extended to the activities carried out by that controlling company in the exercise of its powers as a public authority. Furthermore, according to that court, the conditions for a ‘benefit in kind’ under Paragraph 3(9)a(2) of the UStG were not met.

19    The tax authority brought an appeal on a point of law against that judgment before the Bundesfinanzhof (Federal Finance Court, Germany).

20    The referring court states at the outset that, under the first sentence of Paragraph 2(2)(2) of the UStG, a company which is controlled by and integrated into the undertaking of the controlling company of a group formed by persons who are legally independent but closely bound to one another by financial, economic and organisational links (‘the VAT group’) is not to be regarded as carrying out its economic activity independently. That controlled company, which, if it were taken into account separately, would have to be liable for VAT, would, in fact, in the light of the financial, economic and organisational links which it has with that controlling company, be regarded as being an employee of that controlling company. That would have repercussions as regards the transactions which it carries out both with regard to third parties and with respect to that controlling company.

21    The referring court states, first, as regards the transactions which a controlled company carries out with regard to third parties, that the requirement that there be a single taxable person within the meaning of the second subparagraph of Article 4(4) of the Sixth Directive is guaranteed, even if that taxable person is not the controlled company but the controlling company of the group. The latter is thus liable for the VAT, not only for its own transactions, but also for those carried out by the controlled company vis-à-vis third parties. Accordingly, in the present case, S is liable for that tax in respect of the transactions carried out by U-GmbH vis-à-vis third parties.

22    Secondly, as regards the transactions carried out between a controlled company and the controlling company of a VAT group, they are deemed to be carried out within the same taxable person, with the result that they should be regarded as not falling within the scope of VAT. In the present case, the cleaning services provided by U-GmbH to S are precisely such internal transactions.

23    In the light of the foregoing, the referring court asks whether the option available to the Member States under the second subparagraph of Article 4(4) of the Sixth Directive to designate a single taxable person of a VAT group must be interpreted as meaning that that taxable person must be regarded as either a member of that group, who is liable for VAT in respect of all the transactions carried out by the other members of that group (‘the proposed answer A’), or the VAT group itself, which is separate from its members. In the second situation, such a group would be understood as a fictitious entity created solely for the purposes of VAT (‘the proposed answer B’).

24    If, according to the referring court, the proposed answer A corresponded to decades of the case-law of the Bundesfinanzhof (Federal Finance Court), it would nevertheless be necessary for the Court of Justice to provide additional clarification in the light, in particular, of the guidance set out in the judgment of 17 September 2014, Skandia America (USA), filial Sverige (C‑7/13, EU:C:2014:2225, paragraphs 28 and 29), as regards the question of whether the second subparagraph of Article 4(4) of the Sixth Directive may be interpreted as authorising a Member State to designate, as a single taxable person, not the VAT group itself, but a member of that group, namely that group’s controlling company.

25    In that regard, the referring court considers that the first sentence of Paragraph 2(2)(2) of the UStG, in so far as it focuses on the payment of VAT by one of the members of the group, simplifies the application of VAT law, thus meeting the objective of ‘administrative simplification’ pursued by the second subparagraph of Article 4(4) of the Sixth Directive.

26    However, according to that court, no administrative simplification can be inferred from the approach whereby it is necessary to create an independent VAT group in the sense of a ‘fictitious entity’.

27    In addition, the judgments of 22 May 2008, Ampliscientifica and Amplifin (C‑162/07, EU:C:2008:301, paragraph 19), of 9 April 2013, Commission v Ireland (C‑85/11, EU:C:2013:217, paragraphs 40 and 48), and of 17 September 2014, Skandia America (USA), filial Sverige (C‑7/13, EU:C:2014:2225, paragraphs 28, 29, 35 and 37), cannot be interpreted as meaning that a Member State is not authorised to designate, as a single taxable person of a VAT group, a representative member of that group, namely that group’s controlling company.

28    Furthermore, the fact that a single member of the VAT group is liable for tax for the group as a whole does not preclude the other members of the group from being jointly and severally liable. In that regard, the first sentence of Paragraph 73 of the AO provides, in essence, for the joint and several liability of the controlled companies as regards the tax debt of that group’s controlling company.

29    According to that court, if the question raised in paragraph 23 of the present judgment were to receive the proposed answer B, set out in paragraph 23, that would mean, in essence, that, in the present case, the view could not be taken that the controlling company S and the controlled company U-GmbH are part of a tax group. Thus, the application of Article 6(2)(b) of the Sixth Directive would be precluded, given that, in the absence of a tax group, U-GmbH would have to be considered to be an independent taxable person which provided services to S, for which it would be liable to pay VAT, pursuant to Article 4(1) of the Sixth Directive.

30    In the event that the proposed answer A, set out in paragraph 23 of the present judgment, were, however, to prevail, the referring court asks, in addition, whether the Court’s case-law concerning Article 6(2) of the Sixth Directive and, in particular, the case-law deriving from the judgment of 12 February 2009, Vereniging Noordelijke Land-en Tuinbouw Organisatie (C‑515/07, EU:C:2009:88), must be interpreted as meaning that, in a situation such as that in the main proceedings – as regards an entity such as S which carries out, first, economic activities in respect of which it is liable for tax, and, secondly, activities which it carries out in exercise of its powers as a public authority, for which it is not considered to be liable for VAT under Article 4(5) of that directive – the supply, free of charge, of services falling within the field of economic activity of the entity concerned and intended for its field of activity as a public authority could be taxed under Article 6(2)(b) of that directive.

31    The referring court states that, if the answer to the first question were to be the proposed answer A and that, therefore, Paragraph 2(2)(2) of the UStG should be interpreted as being consistent with the Sixth Directive, the consequence would be that, in the present case, U-GmbH would have to be regarded, in accordance with that provision of German law, as not carrying out its activity independently, with the result that it would constitute a single taxable person with the controlling company S. Thus, no supply of services for consideration, within the meaning of Article 2(1) of the Sixth Directive, would have been provided by U-GmbH to S, since U-GmbH’s activity would have to be regarded as an activity specific to that controlling company S.

32    It is therefore necessary to determine whether the controlling company must be regarded as having provided, through its business resources – which, pursuant to Paragraph 2(2)(2) of the UStG and the second subparagraph of Article 4(4) of the Sixth Directive, also include U-GmbH’s resources – cleaning services free of charge for purposes other than those of its business, within the meaning of Article 6(2)(b) of the Sixth Directive, on account of the fact that those services were provided for its area of activity as a public authority, as a ‘non-economic activity’.

33    In those circumstances, the Bundesfinanzhof (Federal Finance Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1)  Is the authorisation granted to Member States in the second subparagraph of Article 4(4) of [the Sixth Directive] to treat as a single taxable person persons established in their territory who, while legally independent, are closely bound to one another by financial, economic and organisational links to be exercised in such a way that:

(a)   treatment as a single taxable person is effected through one of those persons, who is the taxable person for all of the transactions performed by those persons; or in such a way that:

(b)   treatment as a single taxable person must of necessity – and thus, in addition, under sufferance of substantial tax losses – lead to a VAT group separate from the persons closely bound to one another, which constitutes a fictitious entity to be set up specifically for VAT purposes?

(2)   If the correct answer to the first question is [the proposed answer A]: does it follow from the case-law of the Court of Justice of the European Union concerning non-business purposes within the meaning of Article 6(2) of [the Sixth Directive] [(judgment of 12 February 2009, Vereniging Noordelijke Land- en Tuinbouw Organisatie, C‑515/07, EU:C:2009:88)] that, in the case of a taxable person who

(a)   on the one hand, pursues an economic activity and, in so doing, provides services for consideration within the meaning of Article 2(1) of [the Sixth Directive], and

(b)   on the other hand, pursues at the same time an activity which is incumbent upon it in the exercise of public authority (an activity it carries on in an official capacity) and in respect of which it is not considered to be a taxable person, in accordance with Article 4(5) of [the Sixth Directive], a service falling within the sphere of its economic activity which it provides free of charge for a purpose falling within the sphere of the activity it carries on in an official capacity is not subject to tax, in accordance with Article 6(2)(b) of [the Sixth Directive]?’

 

Judgment

The CJEU (First Chamber) ruled as follows:

1. The second subparagraph of Article 4(4) 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, must be interpreted as not precluding a Member State from designating, as a single taxable person of a group formed by persons who are legally independent but closely bound to one another by financial, economic and organisational links, the controlling company of that group, where that controlling company is in a position to impose its will on the other entities forming part of that group and provided that that designation does not entail a risk of tax losses.
2. EU law must be interpreted as meaning that in the case of an entity which is the single taxable person of a group formed by persons who are legally independent but closely bound to one another by financial, economic and organisational links, and which carries out, on the one hand, economic activities for which it is a taxable person and, on the other, activities in the exercise of its powers as a public authority, in respect of which it is not considered to be a taxable person liable for value added tax under Article 4(5) of the Sixth Directive, the provision, by an entity forming part of that group, of services in connection with that exercise of powers, must not be taxed under Article 6(2)(b) of that directive.

 

The full text of the judgment of the CJEU in Case 269/20 as published on the website of the CJEU can be found here.

 

 

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