Latest German Federal Tax Court developments on VAT grouping

In its previous judgments, the CJEU did not clearly comment on the existence of non-taxable intercompany services within the German VAT law. Reference is made to our previous comments on the issue.

In its new judgment the BFH does not provide clarity on the matter either. Instead, the German Court submitted, again, a request for preliminary ruling to the CJEU, asking whether the grouping of persons as one taxable person pursuant to Art. 4 (4) No. 2 of Directive 77/388/EEC means that supplies made for consideration between VAT grouped entities are to be disregarded for VAT purposes.

On the other hand, in another judgment in relation to VAT groups the BFH overruled its previous case law on financial integration. Until now, financial integration was only deemed to exist if the controlling company not only held more than 50% of the shares in the controlled company, but also had a majority of the voting rights. According to the Court, it is now sufficient for the controlling company to hold only 50% of the shares in other organisational circumstances that ensure that the controlling company can assert its will.

Key takeaway

The CJEU decision on the existence of non-taxable intercompany services is eagerly awaited. Should the CJEU hold that such intercompany services are taxable, this would seriously impact the German (and potentially all EU Countries) practice of VAT grouping. Readers who are interested to know more about that topic may read our more detailed article on the BFH judgments.