Opinion of Advocate General Rantos delivered on 16 May 2024.

• Jurisdiction: European Union
• Court: Court of Justice (European Union)
• ECLI: ECLI:EU:C:2024:416
• Date: 16 May 2024

Provisional text

OPINION OF ADVOCATE GENERAL

RANTOS

delivered on 16 May 2024 (1)

Case C‑184/23

Finanzamt T

v

S

(Request for a preliminary ruling from the Bundesfinanzhof (Federal Finance Court, Germany))

(Reference for a preliminary ruling – Value added tax (VAT) – Sixth Directive 77/388/EEC – Article 2(1) and Article 4(4), second subparagraph – Scope of VAT – Taxable persons – Option for Member States to treat as a single taxable person entities that are legally independent but closely bound to one another by financial, economic and organisational links (‘VAT group’) – Supplies provided for consideration between members of the VAT group – Taxation of such supplies – Recipient of the supply not entitled to deduct VAT – Risk of tax losses)

I. Introduction

1. Do supplies of goods or services effected for consideration between persons forming part of a VAT group (2) (a VAT group’s ‘internal transactions’) fall within the scope of value added tax (VAT) and, if so, are they subject to VAT? Is the answer to that question different if the recipient of the supply of goods or services is not (or is only partly) entitled to deduct input tax?

2. Those, in essence, are the questions which the Court must address in the present case, which concerns a request for a preliminary ruling from the Bundesfinanzhof (Federal Finance Court, Germany) on the interpretation of Article 2(1) and the second subparagraph of Article 4(4) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment. (3)

3. The request for a preliminary ruling has been made in proceedings which have already given rise to a first request for a preliminary ruling, to which the Court responded in the judgment of 1 December 2022, Finanzamt T (Internal supplies within a VAT group) (C‑269/20, ‘the judgment in Finanzamt T I’, EU:C:2022:944). It was following that judgment and the judgment delivered on the same day in Norddeutsche Gesellschaft für Diakonie (C‑141/20, ‘the judgment in Diakonie’, EU:C:2022:943) that the referring court had the doubts which prompted it to make the present request for a preliminary ruling.

4. The present case therefore provides the Court with an opportunity, first, to provide further clarifications concerning the legal regime applicable to VAT groups, which has already been the subject of an extensive body of case-law, and, secondly, to clarify the scope of those two judgments.

II. Legal context

A. European Union law

5. The Sixth Directive was repealed and replaced, from 1 January 2007, by Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (4) (‘the VAT Directive’). However, in view of the date of the facts at issue in the dispute in the main proceedings, the dispute is still governed by the Sixth Directive.

6. Article 2 of the Sixth Directive provided:

‘The following shall be subject to [VAT]:

1. the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such;

…’

7. Article 4(1) and (4) of the Sixth Directive provided:

‘1. “Taxable person” shall mean any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity.

…

4. The use of the word “independently” in paragraph 1 shall exclude employed and other persons from the tax in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationship of employer and employee as regards working conditions, remuneration and the employer’s liability.

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 organisational links.’

B. German law

8. Paragraph 2(2) of the Umsatzsteuergesetz (Law on Turnover Tax; ‘the UStG’), in the version applicable to the dispute in the main proceedings, is worded as follows:

‘The industrial activity, commercial activity, craft or professional activity is not exercised independently:

…

2. if, in the light of the overall actual circumstances, a legal entity is financially, economically and organisationally integrated into the undertaking of the controlling company (tax group). The effects of the affiliation are limited to internal supplies between the constituent parts of the undertaking located in the country. These constituent parts are to be treated as a single undertaking. …

…’

III. The dispute in the main proceedings, the questions referred for a preliminary ruling and the procedure before the Court

9. The facts in the main proceedings are identical to those set out in the judgment in Finanzamt T I. (5) For the purposes of the present proceedings, they may be summarised as follows.

10. S, a German foundation governed by public law, is the controlling company of both a university medicine department and the company U-GmbH (‘U-GmbH’). That foundation is liable for VAT in respect of the care services which it supplies for consideration but is not regarded as a taxable person for the teaching activities which it carries out in the exercise of its powers as a public authority. However, medical services are exempt from VAT under the Sixth Directive.

11. For the 2005 tax year, U-GmbH provided S, inter alia, with cleaning services. Those services were supplied for all of the building complex forming the university medicine department, which includes patients’ rooms, corridors, operating theatres, lecture rooms and laboratories.

12. The hospital area, as such, in so far as it is dedicated to patient care, falls within the sphere of the economic activities carried out by S, for which S is liable for VAT, whereas the lecture rooms, laboratories and other premises are used for the teaching of students, an activity which that foundation carries out in the exercise of its powers as a public authority and in respect of which it is not considered to be liable for that tax.

13. The proportion of the surface area of the building complex in question, for which cleaning services were supplied in respect of activities carried out by S as a public authority, amounted to 7.6% of the total surface area of that building complex. For those services, U-GmbH received remuneration amounting to a total of EUR 76 085.48 from S.

14. Following an audit, the tax authority adjusted S’s tax assessment for the tax year in question, taking the view that S’s establishments formed a single undertaking for which a single VAT return had to be drawn up and, therefore, a single tax assessment had to be issued.

15. Moreover, according to the tax authority, the cleaning services received by S in respect of activities falling within its powers as a public authority were supplied to it by U-GmbH as part of the tax group (Organschaft) which those entities formed, for the purposes of Paragraph 2(2)(2) of the UStG, which is intended to implement, in German law, the option, provided for in the second subparagraph of Article 4(4) of the Sixth Directive, to consider the members of a VAT group as a single taxable person.

16. The tax authority considered that the cleaning services provided in respect of the activities carried out as a public authority were, therefore, non-taxable, and that they would have been carried out for purposes other than that of the business and would have given rise to a ‘supply of services free of charge, treated as a supply of services for consideration’ to S. (6)

17. In the light of those factors, the tax authority formed the view, taking into account the 7.6% proportion of the surface area of the building complex in question, allocated to the activities carried out by S in the exercise of its powers as a public authority, that the sum corresponding to the cleaning of that proportion of the surface area by U-GmbH was EUR 5 782.50. After deduction of a profit mark-up, assessed at EUR 525.66, the tax authority set the taxable amount for the ‘supply of services free of charge’ at EUR 5 257 and thus increased the VAT by EUR 841.12.

18. The rejection of the administrative complaint lodged by S against that amended tax notice was the subject of an action before the Finanzgericht (Finance Court, Germany), which upheld that action.

19. The tax authority brought an appeal on a point of law against that judgment before the Bundesfinanzhof (Federal Finance Court), the referring court, which made the reference for a preliminary ruling to the Court of Justice which gave rise to the judgment in Finanzamt T I.

20. The referring court considers that a request for a preliminary ruling is again necessary in the proceedings currently before it.

21. According to that court, following the judgment in Diakonie, and in particular in the light of the reasoning set out in paragraphs 77 to 80 of that judgment, an uncertainty remains as to whether or not the bringing together of several persons considered as a single taxable person, as provided for in the second subparagraph of Article 4(4) of the Sixth Directive, has the effect of removing supplies made for consideration between those persons from the scope of VAT under Article 2(1) of that directive. Neither the judgment in Diakonie nor the case-law of the Court provides a clear answer as to the taxability of internal transactions.

22. The referring court also considers that doubts exist as to whether internal transactions within the context of a VAT group should, in any event, fall within the scope of VAT where the recipient of the supply of goods or services is not, or is only partly, entitled to deduct input VAT, as otherwise there would be a risk of tax losses. Those doubts arise from the judgments in Finanzamt T I and Diakonie, (7) in which...