In one of our contributions, we announced that the European Court of Justice (ECJ) will soon decide on the VAT group. The sales tax organization is regulated in § 2 paragraph 2 no. 2 UStG. The legal consequence is that internal sales in the organ circle are tax-free. There were significant concerns about the compliance of those schemes with Union law. We explain how the ECJ decided and why.
1st VAT group: requirements, legal consequence
The basis of the organization in sales tax law is § 2 paragraph 2 no. 2 UStG. The standard stipulates that the commercial or professional activity is not pursued independently if a legal person is incorporated financially, economically and organisationally into the institution of the institution in the overall picture of the actual circumstances. Then there is a so-called sales tax organization. The effects of the organisation shall be limited to internal services between the parts of the undertaking located in the country.
Until now, the legal consequence of a turnover tax organization has been that services between organ carriers and organ companies or between organ companies of the same organ group constitute non-taxable internal services. They are therefore not subject to VAT. This practice has been in place for a long time.
From a sales tax perspective, the purpose of this regulation is to simplify the handling of performance relationships within the Group. The organisation is of considerable importance for groups which carry out tax-free basic turnover, since they are not entitled to deduct input tax.
2nd problem: Loss of control substrate
Accordingly, the ECJ should decide whether services within a VAT body are not subject to VAT even if the VAT owed or paid by the recipient of this service cannot be deducted as input VAT.
In order to clarify the EU conformity of this regulation, the Bundesfinanzhof (BFH) submitted questions to the ECJ. The BFH considered it possible that the German scheme under which organ companies are self-employed was not compatible with Article 4(4), 22, sixth subparagraph of RL 77/388/EEC (Article 11 of the VAT Regulation). However, it could still be justified by the general principles of self-employment and thus permissible. If the latter is true, the BFH wanted to know whether EU member states can determine the type of self-employment. The BFH asked the following preliminary questions:
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.