European Court of Justice Ruling on German VAT Rules
On July 11, the European Court of Justice (ECJ) issued a preliminary ruling in Case No. C-184/23 regarding the application of German VAT rules to services provided within a VAT group. This ruling has significant implications for the treatment of services exchanged between closely linked entities within the European Union.
Background
The case involves a German foundation governed by public law, which acts as the controlling entity for both a university and a company. The foundation manages the university and provides it with various services, including cleaning, for the university’s medical department building complex. The foundation engages in economic activities within this complex, with most of these activities being subject to VAT.
Dispute
The German Tax Authority had increased the foundation’s VAT assessment by applying VAT to the services provided for the university’s non-taxable activities within the complex. This led to a legal dispute regarding the correct application of VAT rules.
Key Points of the ECJ Ruling
- Request for Preliminary Ruling: The ruling was made following the German Federal Fiscal Court’s second request for a preliminary ruling on the matter.
- Directive Referenced: The court’s decision was based on the interpretation of Articles 2(1) and 4(4) of the Sixth Council Directive 77/388/EEC.
- Main Finding: The ECJ held that services provided for consideration between legally independent persons, who are closely connected by financial, economic, and organizational links and designated as a single taxable person by an EU member state, are not subject to VAT. This applies even if the VAT due or paid by the recipient of the services cannot be subject to an input VAT deduction.
Implications
The ruling clarifies that within the EU, services exchanged between entities that are part of a VAT group and designated as a single taxable person are exempt from VAT, even when the recipient of the services cannot deduct input VAT.
Source: europa.eu
