The principle has been valid for a long time: internal sales of an organization are not taxable. Now he could tilt. The European Court of Justice (ECJ) has caused considerable uncertainty in connection with the VATability of domestic turnover in an organization. The German regulation of § 2 paragraph 2 no. 2 UStG provides for the non-controllability of internal turnover. However, this regulation could be contrary to EU law. A clear decision by the ECJ on this is expected in the near future. We clarify why internal sales could be taxable and what consequences this would have. The decision has now been made and is discussed in our contribution

1. VAT exemption of domestic sales

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.

starting point: judgment of the ECJ

2.1. templates of the BFH

In order to clarify the Union conformity of this regulation, the V. Senate and the XI submitted. Senate of the Bundesfinanzhof (BFH) submits 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.

2.2. Decision of the ECJ

The judgment of the ECJ of 01.12.2022 C-141/20 (Case Norddeutsche Gesellschaft für Diakonie) has caused considerable uncertainty regarding the conformity with EU law of § 2 paragraph 2 number 2 UStG. The ECJ for the first time expressed doubts about the non-controllability of the internal turnover of an organ.

The ECJ ruled that the members of a VAT group in principle retained their VAT self-employment. He did not assume that self-employment can result from general principles of self-employment. Rather, the organ companies operate independently.

Without the BFH having asked for this, however, the ECJ also commented on the sales taxability of internal sales. In order to determine whether domestic sales are subject to VAT, it is necessary to examine whether the member of the Board is engaged in an independent economic activity. To this end, it must be examined whether it carries out its activities in its own name, for its own account and under its own responsibility and bears the economic risk associated with the pursuit of those activities.

2.3. Succession decision of the BFH

The BFH had joined the principles of the decisions following the ECJ decision. Accordingly, it has decided that the organ bearer is liable for payment of tax on the transactions of the organ group. It also amended its case law on financial inclusion. According to the ECJ decision, this can now also be available if the organ bearer has only 50% of the voting rights, but he holds a majority stake in the capital of the organ company and he provides the sole managing director of the organ company.

However, corresponding decisions of the BFH did not contain any explanation as to whether internal sales of a sales tax organization can be controlled. According to the BFH, this question could be left open. He pointed out that this question had to be decided in the taxation proceedings of the institution responsible as the taxpayer of the institution. However, the plaintiff in the relevant proceedings was the organ company.

2.4 Controllability of internal turnover still unexplained

In parallel proceedings, the V. Senate of the BFH wanted to clarify in the context of a preliminary ruling request whether the national legislation on the body is at all in conformity with EU law. The BFH asks the following preliminary questions: