VAT Newsletter 23/2013
VAT Groups: Federal Fiscal Court changes judicature
By judgment of 8 August 2013, the Federal Fiscal Court changed its judicature on the characteristic of organizational links thereby increasing the requirements for a VAT group. Companies should check if they still fulfill the requirements for a VAT group.


1. Background

A VAT group requires, inter alia, financial, economic and organizational links. If these requirements are given, the subsidiary company is not considered as being independent for VAT purposes. Rather, its supplies are treated as supplies of the parent company. Further, supplies between the parent company and the subsidiary company are considered internal transactions, which are not subject to VAT.

Organizational links imply that the possibility of controlling the subsidiary company, which is connected to the financial link, is indeed exercised in the course of the ongoing management. Pursuant to the hitherto judicature of the Federal Fiscal Court, it was not necessary that the parent company had the power to always enforce its will on the subsidiary. Rather, it was sufficient that the parent company could prevent the subsidiary from forming a divergent will.

In practice, the question of the break-up of the organizational links is of particular relevance for situations where the subsidiary company becomes insolvent. Before the judgment of the Federal Fiscal Court, it was generally understood that the organizational links terminated at the

point in time when the power to dispose of assets was transferred to the insolvency administrator or to a preliminary insolvency administrator. Once the power to dispose of assets was transferred, the parent company could no longer prevent a divergent will at the level of the subsidiary.

2. The judgment of the Federal Fiscal Court

Pursuant to the judgment of the Federal Fiscal Court of 8 August 2013, the organizational links are broken when, in the course of a preliminary insolvency procedure, the preliminary insolvency administrator needs to approve all decisions at the level of the subsidiary. Although the subsidiary could not form a divergent will during the preliminary insolvency procedure, the Federal Fiscal Court took the view that the organizational links were broken. This is because the Federal Fiscal Court now requires for the organizational links to be found to exist, that the parent company is always in a position to enforce its will.

The judgment has general relevance because of the Federal Fiscal Court’s change of judicature. Companies should check whether the parent company has the legal possibility to always enforce its will on the subsidiary. If there is doubt, the VAT group should take the necessary company law measures in order to secure the organizational links.

Contact:

KÜFFNER MAUNZ LANGER ZUGMAIER
Rechtsanwaltsgesellschaft mbH
Unterer Anger 3
80331 München
Phone + 49 (0) 89 / 2 17 50 12 - 20
Telefax + 49 (0) 89 / 2 17 50 12 - 99
E-Mail: office@kmlz.de

As per: 09.09.2013