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German VAT group rules – ECJ rulings

Two cases call for loosening of requirements on VAT group rules

The European Court of Justice (‘ECJ’) has provided two rulings* on three questions around German VAT Group rules. The outcome means some loosening of the requirements and more clarity.

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The Court provided opinions on the following 3 questions from the Bundesfinanzhof (Federal Finance Court, Germany):

  1. Are members of a VAT group independent for VAT purposes? Broadly, yes per the ECJ and tax authorities must consider if each member still undertakes separate economic activities and transactions.  This was the major disagreement with German VAT law which views members of the group as part of the controlling group member. This means that transactions are always zero-rated within the group. The ECJ is therefore suggesting if the transactions are undertaken by a non-controlling member of the group under their own name, accounting and risk etc, then VAT may apply. The financial risks with this view is where the group makes exempt supplies but receives VAT supplies from an independently acting member and so attract non-deductible VAT.
  2. May the tax authorities determine a member of the group as the taxable person instead of the group? Yes, the German rules today follow the EU VAT Directive since they are largely silent on how to determine who is the controlling party in the group.
  3. Is the German requirement for VAT groups of financial integration too strict? Yes, it should not be necessary to prove financial subordination to qualify for the right to form a VAT Group.

*C-141/20 “Norddeutsche Gesellschaft für Diakonie”

* C-269/20 “Finanzamt T vs. S”


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