Indirect economic integration in a VAT fiscal unity

VAT fiscal unity requires financial, economic and organisational links.

The German Federal Tax Court (GFTC) had to determine if an economic link existed between a German corporation (GmbH) and its sole shareholder's real estate business. The GmbH managed over 1000 units, including residential buildings owned by its shareholder, and both claimed a VAT fiscal unity. Additionally, the shareholder had a majority stake in a partnership, from which the GmbH rented office space.

The GmbH was part of the "V-Group," a consortium of real estate companies offering various services. The possibility of an indirect economic link through V-Group services remained arguable but required further clarification. Despite clear financial and organisational integration, the GFTC found that the mere standardised management services provided by the GmbH were insufficient to meet the economic link criteria. Due to incomplete data, the GFTC couldn't conclusively assess the presence of such link.

For the GFTC, an indirect economic link could arise through V-Group companies promoting GmbH's activities if they provide services for consideration and are controlled by GmbH's sole shareholder. However, these details require clarification at the Tax Court level.

Additionally, neither the Tax Court nor the GFTC addressed the potential economic link via office space rentals by the partnership in which the GmbH's sole shareholder holds 95%.

Key Takeaway

Since the Tax Court had not fully clarified the facts of the case, the GFTC referred the matter back for clarification.

However, it can be stated that indirect economic integration requires that the company in question is economically intertwined with another company which in its turn is a controlled company of a common controlling company.

Reference: Entscheidung Detail | Bundesfinanzhof