The Advocate General of the European Court of Justice (ECJ) has published an opinion in the case of Beteiligungsgesellschaft Laurentia + Minerva mbH & Co KG. Questions arising from this case were referred to the ECJ for a preliminary ruling by the Bundesfinanzhof. The case concerns issues related to value added tax (VAT) and specifically to input tax deduction and VAT groupings.
Questions for preliminary ruling
The questions to be answered by the ECJ are as follows:
1. Which calculation method should be used in computing a holding company’s input tax deduction for input supplies related to the procurement of capital for the purchase of shares in subsidiary companies, if the holding company intended to provide various taxable services to those companies and has provided such services.
2. Does the provision consolidating several persons into a single taxable person in the second subparagraph of Article 4(4) of the Sixth Council Directive 77/388/EEC of 17 May 1977 preclude national legislation under which only a legal person, but not a partnership, can be integrated into the undertaking of another taxable person (Organträger or controlling company) and where the legislation requires that this legal person is integrated into the undertaking of the Organträger in financial, economic and organizational terms, in a relationship of control and subordination.
3. If the answer to the previous question is yes, can a taxable person rely directly on the second subparagraph of Article 4(4) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes?
Article 4(4) of the Sixth VAT Directive
The second paragraph of Article 4(4) of the Sixth Directive provided that: “Subject to the consultations provided for in Article 29, each Member State may treat as a single taxable person persons established in the territory of the country who, while legally independent, are closely bound to one another by financial, economic and organizational links.
Advocate General’s Opinion
The published opinion of the Advocate General with regard to these questions is as follows:
1. Expenditure of the holding company related to capital transactions has a direct and immediate link with the holding company’s economic activity as a whole, if the holding company involves itself directly or indirectly in the management of its subsidiaries. Input tax on the expenditure does not need to be apportioned between economic and non-economic activities in this case. If the holding company carries out some transactions that are subject to VAT and some exempt transactions the proportion method provided for in the directive is used to calculate the deduction for input tax.
2. The second subparagraph of article 4(4) of the Sixth VAT Directive prevents a member state from making the formation of a VAT group subject to the condition that all the members of that group must have legal personality, unless this condition can be justified by the prevention of abusive practices or of tax evasion or avoidance, taking into account EU law and the principle of fiscal neutrality.
National legislation providing that close financial, economic and organizational links can exist only where there is a relationship of control and subordination between the members of a VAT group is liable to be compatible with Article 4(4), if it is necessary and proportionate to prevent abusive practices and tax evasion or avoidance and is in compliance with EU law and the principle of fiscal neutrality.
3. A taxable person cannot rely directly on the second subparagraph of article 4(4). The referring court must interpret its national legislation in conformity with that provision of the Sixth Directive.
When the ECJ reaches its decision it takes into account the opinion of the Advocate General but is not obliged to follow that opinion.
