VAT group and neutrality of turnover within group – is this (finally) the end of the doubts?

Another German VAT group question

The CJEU judgment of 11.7.2024 in case C-184/23 is another judgment on VAT groups. The preliminary question in this case was (again) initiated by the German Federal Fiscal Court, which has recently been ‘actively’ asking the Court about the nature of VAT groups. This is interesting as VAT groups in Germany (Organschaft) have been around for several decades and the questions that are being asked by the German court are quite surprising. Besides, this is a renewed request to the Court to settle a dispute in a case on which the Court has already ruled once recently (C-269/20).

The VAT group in Germany has its own specific nature . First of all, the VAT group is compulsory, i.e. the fulfilment of the certain criteria  by law establishes the so-called Organschaft in Germany. It is also worth pointing out that the VAT taxpayer in Germany is not the VAT group as such, but the parent entity within the group.

Is intra-group turnover definitely neutral for VAT purposes?

Through its two questions, the Federal Fiscal  Court sought to determine whether the provisions of the VI Directive (the case concerned a dispute from 2005) are to be interpreted as meaning that supplies made for consideration between persons belonging to the same VAT group should be subject to VAT and whether the fact that the recipient of this supply cannot deduct the input VAT should be taken into account on the grounds that such a situation would involve a risk of tax loss.

CJEU judgment – no VAT within the group

In its judgment, the CJEU first of all confirmed that intra-group transactions are not subject to VAT. In doing so, like the Advocate General, it pointed to the clear EC Communication and the VAT Committee’s guidelines on the matter, where it was emphasized that treating a VAT group as a single taxpayer precludes the members of that group from continuing to act, within and outside their group, as separate taxpayers for VAT purposes.

Often, the reason for the formation of a group is the perspective  of essential financial benefits for e.g. banks or insurance companies that only partially carry out taxable activities. The judgment confirmed that also in a situation where a group is formed by entities which do not have the right to fully or partially deduct VAT, intra-group transactions are not subject to VAT. .

The CJEU judgment and the VAT group in Poland

This is a confirmation of an obvious consequence related to the formation of a VAT group, which also clearly follows from Polish regulations. Some taxpayers anxiously observing the recent ‘German’ cases before the CJEU should therefore not be concerned that the most natural effect related to the creation of VAT groups will per se be undermined in any way.

The German case before the CJEU also raised the aspect of a possible tax law abuse as a result of the neutrality of intra-group VAT turnover (‘risk of tax loss’). The judgment confirmed that the mere formation of a group cannot be regarded as generating such risks by definition. The Polish Tax Explanations to the VAT group regulations issued by the Ministry of Finance also point out that abuse of law could be potentially identified in case of group whose structure would turn out to be manifestly artificial. This would, moreover, be an extreme situation which should occur ‘extremely rarely’.