CJEU confirms that supplies within a VAT group are not taxable

This is the second preliminary ruling issued by the CJEU in the Finanzamt T case. In previous proceedings, the CJEU had addressed the criteria for companies to form a VAT group. However, in those proceedings, the non-taxation of intra-group supplies was put into question, particularly considering the opinion of Advocate-General Medina.

Taxing intra-VAT group supplies would, in particular, have a serious impact in the financial, insurance and healthcare sectors where companies often cannot recover VAT on costs. Forming a VAT group is often aimed at reducing this input VAT loss as no VAT is incurred on intra-group supplies. Aware of these consequences, the German Federal Tax Court referred this question to the Court, thus giving the CJEU the opportunity to clarify its position.

In this judgment, the CJEU has confirmed that intra-VAT group supplies remain outside the scope of VAT, even though those supplies are made to a recipient, which could not have deducted the VAT in question.

Key takeaway

The judgement is a relief for many taxpayers. The financial advantages of VAT grouping are a key factor in the decision-making process when it comes to setting up a VAT group. Making sure that the conditions for forming a VAT group are met – therefore avoiding VAT losses on supplies made to exempt or partially exempt businesses – remains crucial.

Reference

CURIA - Documents