Case C-184/23 before the Court of Justice of the European Union (CJEU) concerns the application of VAT to intra-group transactions under Directive 2006/112/EC. Specifically, it concerned the case of a German public-law foundation ‘S’, which was the parent company of a university (which managed a university medical centre) and a company called ‘U-GmbH’.
In 2005, U-GmbH provided various services (cleaning, laundry, patient transport) in the university medical centre complex. Some of the facilities in which these services were provided were used for activities subject to VAT and some for activities not subject to VAT, as S acted as a public entity.
Following an inspection, the German tax authorities initially took the view that S and U-GmbH formed a tax group and should submit a single return. Therefore, the services between the two entities were not subject to VAT. However, it also took the view that the part of the services intended for S’s non-taxable activities was to be classified as ‘use for non-business purposes’ and had given rise to a ‘free supply of services equivalent to a supply of services for consideration’ in S’s favour under German rules, giving rise to taxable personal consumption.
S successfully appealed to the Finanzgericht (Fiscal Court), but the Administration appealed. The Bundesfinanzhof (Federal Finance Court) asked the CJEU whether, under the Sixth Directive, intra-group transactions should be considered non-taxable and taxed where the recipient does not have a full right of deduction. The Court ruled that, since a single taxable person is involved, intra-group transactions cannot be classified as supplies for consideration between different persons and are therefore not subject to VAT. This conclusion remains valid even if the recipient has no right of deduction or only a partial right of deduction.
The CJEU confirmed the principles already established in previous rulings (C 162/07, C 141/20, C 269/20):
a) the status of a single taxable person implies a single tax identification number and a single act in relation to third parties and the Administration;
b) intra-group transactions lack the duality of parties necessary for VAT liability;
c) Member States may adopt measures to prevent tax evasion and avoidance; and
d) the right to deduct is determined by analysing the overall activity of the group and not that of each individual member. Thus, the absence of intra-group liability may affect the overall percentage of deductibility, especially in the case of public entities or those with exempt activities.
In short, the CJEU’s decision in case C-184/23 confirms that intra-group transactions are not subject to VAT under a single taxpayer regime, regardless of the deductibility of the internal recipient. Furthermore, in order to avoid tax losses, Member States may not split the consideration of the group and selectively tax these services if they have already transposed the Directive into their national legislation.
Author: Gonzalo Díaz-Heredero López.
