The ECJ judgment of 1 December 2022 in the case of Finanzamt T allows public bodies and non-profit organisations a great deal of leeway. According to the ECJ, the VAT group also includes the non-economic (sovereign and “idealistic”) sector and there is no taxation in the form of a supply carried out free of charge. Even though the ECJ has not explicitly ruled on the non-taxable nature of internal transactions, there are numerous arguments in favour of their being non-taxable.
Taxable persons occasionally face accusations raised by their tax office that they ought to have known about fraud committed by another person from whom they have purchased goods or supplies of services. As a result, the tax office denies them the deduction of input VAT and/or the VAT exemption for intra-Community supplies. The ECJ has now ruled that the denial of corresponding tax advantages may also go beyond the actual tax loss that the tax authorities have suffered in the supply chain (judgment of 24 November 2022 – C-596/21 – Finanzamt M). Taxable persons should take precautions to avoid being exposed to the accusation that they “ought to have known” about the commission of a particular fraudulent act.
Long awaited, now they are here: The ECJ judgments regarding the VAT group. In summary, it remains the case that the controlling company is the taxable person for the group. In this respect, German law does not violate EU law. However, the ECJ's position on the taxability of supplies between group members remains unclear. In addition, the ECJ again shows that the parent company’s right to intervene in the activities of the subsidiary cannot be seen as mandatory in order for the establishment of a VAT group. The issue of supplies carried out free of charge, which was also dealt with by the ECJ, will be covered shortly in an upcoming newsletter.