Currently, the German Finance Courts have referred several questions to the Court of Justice of the European Union (CJEU) regarding the conditions to be met for a VAT group. The questions pending before the CJEU deal with the conditions under which a partnership can be part of a VAT group, specifically what conditions need to be met with respect to financial integration (financial link) and whether the current German practice that the parent company of the VAT group (and not the VAT group itself) owes the VAT to the German tax authorities is in line with the EU VAT law.
The first request for a preliminary ruling was addressed to the CJEU by the Finance Court of Berlin-Brandenburg. Both the Federal Finance Court and the Finance Court of Berlin-Brandenburg are of the opinion that a partnership can be regarded as part of a VAT group. However, the Finance Court of Berlin-Brandenburg challenges the Federal Finance Court’s opinion that for financial integration all partners of the partnership are financially linked to the parent company of the VAT group. The Federal Finance Court is of the view that whether a financial link (majority of the voting rights) between the parent company of the VAT group and the partnership exists must be legally certain and easily verifiable by the tax authorities. However, the Finance Court of Berlin-Brandenburg is of the view that the principle of legal certainty given in the EU VAT law serves solely to protect the taxpayer, for whom there is no legal uncertainty as the taxpayer knows the distribution of voting rights. According to the Finance Court of Berlin-Brandenburg, the purpose is not to relieve the tax authorities of their investigative duties.
Given these conflicting views, it’s possible that the CJEU will allow the integration of partnerships in a VAT group under simpler conditions.
The second request for a preliminary ruling addressed by the Federal Finance Court to the CJEU also deals with the condition of financial integration. The question pending is whether the condition of the financial integration is fulfilled where the parent company holds a majority stake in the group company (but not the majority in voting rights) and the organisational link is very predominant (for example, the same persons are responsible for making decisions for all entities in the group). Furthermore, the Federal Finance Court has asked whether the German practice that the parent company of the VAT group (and not the VAT group itself) owes the VAT to the German tax authorities is in line with the EU VAT law. It should be noted that depending on what the CJEU decides, VAT assessment notices addressed to the parent company of the VAT group are unlawful simply because they are addressed to the wrong person.
The last case, which is pending before the Federal Finance Court, deals with the question of whether there is a benefit-in-kind in cases where a VAT group company carries out supplies to the parent company for consideration in its area governed by public law (in other words, the supply is consumed to carry out sovereign tasks). The Financial Court of Lower Saxony is of the view that transactions governed by public law are economic activities and rules related to taxation of a benefit-in-kind should not apply.
Given these references to the CJEU, we recommend VAT groups file an appeal against VAT assessment notices to keep those years open for adjustments pending the future CJEU rulings.
Frank von Itter