The national rules on tax groups are regularly the subject of the jurisdiction of the European Court of Justice (ECJ). This seemed inconceivable some time ago, however, it is no longer a matter of whether partnerships can be tax groups, but only under what conditions. In the course of current proceedings, a new question has now been raised, which may turn everything upside down. The tax authorities are threatened with massive tax losses.
Facts
The German Federal Fiscal Court has referred a case to the ECJ to clarify whether the conditions for a turnover tax group were existent. However, the points submitted to the ECJ not only concern questions of financial classification in the specific case, but also the principles of the tax group in accordance with German law.
First of all, the German Federal Fiscal Court asks the ECJ to clarify whether the German rules, according to which the controlling company is liable to pay the VAT of the tax group, comply with the requirements of the VAT System Directive. If this is not the case, the German Federal Fiscal Court would still like to know whether an individual company can rely on the VAT System Directive in this respect. With regard to the specific case, the German Federal Fiscal Court also asks whether or not the conditions for financial classification must be strictly examined and to what extent the controlling company must be in a position to enforce its will with the subsidiary company.
Consequences
The German Federal Fiscal Court tends to make the tax group itself liable for VAT, not the controlling company. Should the ECJ confirm this opinion, all previous VAT returns of tax groups could be incorrect and could be corrected, provided that the limitation period has not yet expired. For the tax authorities, this could mean considerable tax shortfalls.
Controlling companies should therefore keep their assessments open in procedural terms in order to be able to benefit from the ECJ ruling where applicable. The statements of the ECJ on financial classification will also have to be taken into account. We will keep you informed of further developments.