C-184/23 Finanzamt T II

JUDGMENT OF THE COURT (Fourth Chamber)

11 July 2024 ( *1 )

(Reference for a preliminary ruling – Common system of value added tax (VAT) – Sixth Directive 77/388/EEC – Article 2(1) – Article 4(4), second subparagraph – Taxable persons – Option for Member States to treat as a single taxable person, known as a ‘VAT group’, persons who, while legally independent, are closely bound to one another by financial, economic and organisational links – Services provided within the VAT group – Taxation of such services – Recipient of the services not entitled to deduct VAT – Risk of tax losses)

In Case C‑184/23,

REQUEST for a preliminary ruling under Article 267 TFEU from the Bundesfinanzhof (Federal Fiscal Court, Germany), made by decision of 26 January 2023, received at the Court on 22 March 2023, in the proceedings

Finanzamt T

v

S,

THE COURT (Fourth Chamber),

composed of C. Lycourgos, President of the Chamber, O. Spineanu‑Matei, J.‑C. Bonichot (Rapporteur), S. Rodin and L.S. Rossi, Judges,

Advocate General: A. Rantos,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after considering the observations submitted on behalf of:

S, by R.J. Schwerin and D. Sommerfeld, Rechtsanwälte,

the German Government, by M.J. Möller and A. Hoesch, acting as Agents,

the European Commission, by B. Eggers and M. Herold, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 16 May 2024,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns 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 (OJ 1977 L 145, p. 1) (‘the Sixth Directive’).

2The request has been made in proceedings between the Finanzamt T (Tax Office, Germany) and S, a German foundation governed by public law, concerning that foundation’s liability for value added tax (VAT) for the 2005 tax year.

Legal context

European Union law

3The Sixth Directive was repealed and replaced from 1 January 2007 by Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1). However, in view of the date of the facts at issue in the dispute in the main proceedings, the dispute continues to be governed by the Sixth Directive.

4Article 2 of the Sixth Directive provided:

‘The following shall be subject to [VAT]:

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

…’

5Article 4 of that 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.

5. States, regional and local government authorities and other bodies governed by public law shall not be considered taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with these activities or transactions.

…’

6Under Article 6(2) of that directive:

‘The following shall be treated as supplies of services for consideration:

…

supplies of services carried out free of charge by the taxable person for his own private use or that of his staff or more generally for purposes other than those of his business.

Member States may derogate from the provisions of this paragraph provided that such derogation does not lead to distortion of competition.’

7Article 13(A)(1)(b) of that directive provided:

‘1. Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse:

…

hospital and medical care and closely related activities undertaken by bodies governed by public law or, under social conditions comparable to those applicable to bodies governed by public law, by hospitals, centres for medical treatment or diagnosis and other duly recognised establishments of a similar nature.’

8Article 17(2) of the Sixth Directive provided:

‘In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

[VAT] due or paid in respect of goods or services supplied or to be supplied to him by another taxable person;

…’

9Article 11 of Directive 2006/112 provides:

‘After consulting the advisory committee on [VAT] (hereafter, the ‘VAT Committee’), each Member State may regard as a single taxable person any persons established in the territory of that Member State who, while legally independent, are closely bound to one another by financial, economic and organisational links.

A Member State exercising the option provided for in the first paragraph, may adopt any measures needed to prevent tax evasion or avoidance through the use of this provision.’

German law

10Paragraph 2(2) of the Umsatzsteuergesetz (Law on Turnover Tax), in the version applicable to the dispute in the main proceedings (‘the UStG’), 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. …’

11Paragraph 3(9a), point 2, of the UStG provides:

‘The following shall be treated as another supply for consideration:

…

2. the performance of other services free of charge by a trader for purposes other than those of that trader’s business or for the private use of that trader’s staff, provided that they are not courtesy gifts [to them].’

The facts of the main proceedings and the questions referred for a preliminary ruling

12It is apparent from the order for reference that S is a German foundation governed by public law, which is the controlling company of a university, which also manages a university medicine department, and of the company U-GmbH.

13In 2005, the company U-GmbH provided S with cleaning, hygiene and laundry services, as well as patient transport services. The cleaning services were provided in respect of all of the building complex forming the university medicine department, including patients’ rooms, corridors, operating theatres, lecture rooms and laboratories.

14S carries out economic activities in the building complex for which it is subject to VAT, but it uses the lecture rooms and other parts of that complex for teaching students, which it carries out as a public authority and for which it is not regarded as a taxable person for the purposes of VAT. It is submitted that the proportion of the surface area of that building complex dedicated to those teaching activities amounts to 7.6% of the total surface area of that complex.

15On 3 November 2005, following an audit, the tax authority adjusted S’s VAT assessment for the year 2005.

16In the first place, concluding that S’s establishments formed a single undertaking, of which S was the controlling company, the tax authority was of the view that a single VAT declaration had to be drawn up and, consequently, a single tax assessment had to be issued.

17In the second place, the tax authority concluded that, under Paragraph 2(2), point 2 of the UStG, the cleaning services provided by U-GmbH to S were services provided within the tax group (Organschaft) formed by S and U-GmbH and that, therefore, those services were not subject to VAT.

18However, the tax authority was also of the view that, in so far as those services had been carried out for S’s activities for which it is not considered to be subject to VAT, they had been carried out ‘for purposes other than that of the business’ and had given rise, in favour of S, to a ‘supply of services free of charge, treated as a supply of services for consideration’ in accordance with Paragraph 3(9a), point 2, of the UStG, which implemented Article 6(2)(b) of the Sixth Directive.

19On that basis, the tax authority increased the amount of VAT due from S.

20S lodged an administrative complaint against that decision, which was rejected.

21The Finanzgericht (Finance Court, Germany) upheld the action brought by S against that decision concerning the increase in VAT. In that regard, it concluded that the tax group (Organschaft) which comprised, within a single undertaking, the controlling company S and U-GmbH, extended to S’s activities carried out as a public authority and that the conditions provided for in Paragraph 3(9a), point 2, of the UStG, were not met.

22The tax authority brought an appeal on a point of law against that judgment before the referring court, the Bundesfinanzhof (Federal Fiscal Court, Germany). That court referred the matter to the Court of Justice for a preliminary ruling in order to determine whether the German regulations relating to tax groups complied with EU law and whether Article 6(2)(b) of the Sixth Directive was applicable.

23That request for a preliminary ruling gave rise to the judgment of 1 December 2022, Finanzamt T (Internal supplies within a VAT group) (C‑269/20, EU:C:2022:944). In that judgment, the Court considered that the second subparagraph of Article 4(4) of the Sixth Directive did not preclude a Member State from designating, as a single taxable person of a VAT group, the controlling company of that group, where that controlling company is in a position to impose its will on the other entities forming part of that group and provided that that designation does not entail a risk of tax losses. The Court also held that EU law must be interpreted as meaning that, in the case where such a controlling company carries out economic activities for which it is subject to VAT and activities in the exercise of its powers as a public authority, in respect of which it is not considered to be a taxable person liable for VAT under Article 4(5) of that directive, the provision of services, by an entity forming part of that group, in connection with that exercise of powers must not be taxed under Article 6(2)(b) of that directive.

24The referring court concludes that it is necessary to refer the matter again to the Court of Justice, in the context of the same dispute, on the question whether supplies made for consideration between persons belonging to the same VAT group fall within the scope of application of VAT, pursuant to Article 2(1) and the second subparagraph of Article 4(4) of the Sixth Directive. It is of the view that there is uncertainty in that regard, taking into account the Court’s statements in paragraphs 77 to 80 of the judgment of 1 December 2022, Norddeutsche Gesellschaft für Diakonie (C‑141/20, EU:C:2022:943).

25The referring court also queries whether it is appropriate, in any case, to make such supplies subject to VAT, where the recipient of those supplies is not or is only partly authorised to deduct input tax due or paid, in order to avoid a ‘risk of tax losses’, taking into account the principles resulting from the judgments of 1 December 2022, Norddeutsche Gesellschaft für Diakonie (C‑141/20, EU:C:2022:943) and of 1 December 2022, Finanzamt T (Internal supplies within a VAT group) (C‑269/20, EU:C:2022:944).

26In those circumstances, the Bundesfinanzhof (Federal Fiscal Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

Does the bringing together of several persons into a single taxable person, as provided for in the second subparagraph of Article 4(4) of [the Sixth Directive], have the effect of removing [supplies] made for consideration between those persons from the scope of [VAT] as defined in Article 2(1) of that directive?

Do [supplies] made for consideration between those persons fall within the scope of [VAT] in any event in the case where the recipient of the [supply] is not (or is only partly) entitled to deduct input tax, as there is otherwise a risk of tax losses?’

Consideration of the questions referred

27By its two questions, which are to be examined together, the referring court is asking, in essence, whether Article 2(1) and the second subparagraph of Article 4(4) of the Sixth Directive must be interpreted as meaning that services provided for consideration between persons belonging to the same VAT group must be subject to VAT and whether the fact that the recipient of that service cannot deduct input VAT due or paid must be taken into account on the grounds that such a situation would entail a risk of tax losses.

28It must be borne in mind, at the outset, that, under Article 2(1) of the Sixth Directive, supplies of goods or services made for consideration within the territory of the country by a taxable person acting as such are subject to VAT.

29Under Article 4(1) of that directive, a ‘taxable person’ means any person who independently carries out any economic activity specified in Article 4(2) of that directive, whatever the purpose or results of that activity.

30In addition, it follows from the Court’s case-law that a supply of services is subject to VAT only if there exists between the service supplier and the recipient a legal relationship in which there is a reciprocal performance, the remuneration received by the supplier constituting the value actually given in return for the service supplied to the recipient (see, to that effect, judgment of 24 January 2019, Morgan Stanley & Co International, C‑165/17, EU:C:2019:58, paragraph 37, and the case-law cited).

31To establish whether such a legal relationship exists, it is necessary to determine whether the service supplier carries out an independent economic activity, in particular in that it bears the economic risk arising from its business (see, to that effect, judgments of 17 September 2014, Skandia America (USA), filial Sverige, C‑7/13, EU:C:2014:2225, paragraph 25, and of 24 January 2019, Morgan Stanley & Co International, C‑165/17, EU:C:2019:58, paragraph 35).

32As for the question whether services provided between members of the same VAT group must be subject to VAT, it should be noted, taking into account the questions raised by the referring court, that the Court did not rule on that question in the judgment of 1 December 2022, Norddeutsche Gesellschaft für Diakonie (C‑141/20, EU:C:2022:943).

33In paragraphs 77 to 80 of that judgment, referred to more particularly by the referring court, the question examined was whether a Member State can classify, ‘by categorisation’, given entities as being non-independent, for the purposes of Article 4(1) and the first subparagraph of Article 4(4) of the Sixth Directive, when those entities are financially, economically and organisationally integrated into the controlling company of a VAT group.

34It is apparent from paragraphs 23 and 28 to 30 of that judgment that that question was asked by the same referring court which made the present request for a preliminary ruling in order to assess whether the German system regarding a tax group (Organschaft) could be ‘justified’, in any event, by means of a combined reading of Article 4(1) and the first subparagraph of Article 4(4) of the Sixth Directive.

35Therefore, the case-law resulting from the judgment of 1 December 2022, Norddeutsche Gesellschaft für Diakonie (C‑141/20, EU:C:2022:943), does not prejudge the answer that should be given to the question whether the services provided between members of the same VAT group falls within the scope of VAT.

36In order to answer that question, it is important, however, to take into account whether those members belonged to the same VAT group and the specific rules laid down in the second subparagraph of Article 4(4) of the Sixth Directive (see, to that effect, judgment of 11 March 2021, Danske Bank, C‑812/19, EU:C:2021:196, paragraph 22).

37According to the wording of that provision, 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.

38In addition, it follows from settled case-law that the effect of implementing the scheme established in the second subparagraph of Article 4(4) of the Sixth Directive is that national legislation adopted on the basis of that provision allows entities which have such links no longer to be treated as separate taxable persons for the purposes of VAT but to be treated as a single taxable person and that, where that provision is implemented by a Member State, the closely linked entity or entities within the meaning of that provision cannot be treated as a taxable person or persons within the meaning of Article 4(1) of the Sixth Directive (see, to that effect, judgments of 22 May 2008, Ampliscientifica and Amplifin, C‑162/07, EU:C:2008:301, paragraph 19; of 1 December 2022, Norddeutsche Gesellschaft für Diakonie, C‑141/20, EU:C:2022:943, paragraph 45; and of 1 December 2022, Finanzamt T (Internal supplies within a VAT group), C‑269/20, EU:C:2022:944, paragraph 39).

39Therefore, the treatment of a VAT group as a single taxable person under the second subparagraph of Article 4(4) of the Sixth Directive precludes members of the VAT group from continuing to submit VAT declarations separately and from continuing to be identified, within and outside their group, as individual taxable persons, since the single taxable person alone is authorised to submit such declarations. That provision therefore necessarily requires, where it is implemented by a Member State, the national implementing legislation to provide that the taxable person is a single taxable person and that a single VAT number be allocated to the group (see, to that effect, judgments of 22 May 2008, Ampliscientifica and Amplifin, C‑162/07, EU:C:2008:301, paragraphs 19 and 20, and of 1 December 2022, Finanzamt T (Internal supplies within a VAT group), C‑269/20, EU:C:2022:944, paragraph 40).

40As noted by the Advocate General, in points 44 and 45 of his Opinion, it follows that a supplier belonging to a VAT group cannot, when the Member State has implemented such a scheme, be treated, individually, as a separate taxable person from the taxable person constituted by the VAT group, with the result that there is no need to determine whether that supplier meets the independence condition laid down in Article 4(1) of the Sixth Directive when it provides a service for consideration to another entity of that VAT group. Accordingly, such provision of service cannot fall within the scope of VAT under Article 2(1) of that directive.

41Lastly, it is important to note that the VAT Committee, established in Article 398 of Directive 2006/112, carried out an identical analysis regarding the VAT group referred to in Article 11 of that directive in the guidelines resulting from the 119th meeting of that committee of 22 November 2021, which state that the treatment of a VAT group as a single taxable person precludes the members of that group from continuing to operate, within and outside their group, as individual taxable persons for VAT purposes. While such a document does not have binding effect, nevertheless constitutes an aid to the interpretation of the Sixth Directive (see, by analogy, order of 8 October 2020, Weindel Logistik Service, C‑621/19, EU:C:2020:814, paragraph 48).

42Similarly, point 3.4.3 of the communication from the Commission to the Council and the European Parliament on the VAT group option provided for in Article 11 of Council Directive 2006/112/EC on the common system of value added tax (COM(2009) 325 final), relating to ‘Intra-group supplies’, states that transactions between members of the same VAT group do not exist for VAT purposes.

43As to whether it is appropriate to distinguish the particular case where the provider of such a service cannot rely on the right to deduct input VAT due or paid, on the ground that there exists, in that case, a ‘risk of tax losses’, it is important, at the outset, to recall that, within the framework of a VAT group, the right to deduct input VAT due or paid is conferred on the group itself and not on its members.

44Furthermore, in the judgments of 1 December 2022, Norddeutsche Gesellschaft für Diakonie (C‑141/20, EU:C:2022:943), and of 1 December 2022, Finanzamt T (Internal supplies within a VAT group) (C‑269/20, EU:C:2022:944), which the referring court has cited in its order for reference, the condition concerning the need to avoid a risk of tax losses, to which the Court has referred, related to a different question from that examined in the present case.

45As is apparent from paragraph 60 of the judgment of 1 December 2022, Norddeutsche Gesellschaft für Diakonie (C‑141/20, EU:C:2022:943), and paragraph 53 of the judgment of 1 December 2022, Finanzamt T(Internal supplies within a VAT group) (C‑269/20, EU:C:2022:944), that question concerned the possibility for a Member State to designate, not the VAT group itself, but the controlling company of that group to fulfil the role of a single taxable person. As recalled in paragraph 23 of the present judgment, the Court considered that that could be the case if that designation led to the same result, as regards tax revenue, as in the case where the VAT group were itself liable for that tax (see, to that effect, judgments of 1 December 2022, Norddeutsche Gesellschaft für Diakonie, C‑141/20, EU:C:2022:943, paragraphs 57 to 59, and of 1 December 2022, Finanzamt T(Internal supplies within a VAT group)C‑269/20, EU:C:2022:944, paragraphs 50 to 52).

46By contrast, the ‘risk of tax losses’ which the referring court mentions in its second question results, a priori, not from the application of conditions specific to the VAT group regime which are also specific to the law of a Member State but rather from the application of the common VAT system laid down by the Sixth Directive and the rules relating to the deduction of input VAT due or paid which it lays down.

47In the light of the above, the answer to the questions referred is that Article 2(1) and the second subparagraph of Article 4(4) of the Sixth Directive must be interpreted as meaning that services provided for consideration between persons belonging to the same VAT group are not subject to VAT, even where the VAT due or paid by the recipient of those services cannot be subject to an input deduction.

Limitation of temporal effects

48The German government has requested the Court to limit the temporal effects of the present judgment in the event that the Court answers the first or second question in the affirmative.

49Taking into account the answer given to the two questions asked by the referring court, there is no need to respond to that request.

Costs

50Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the referring court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Fourth Chamber) hereby rules:

Article 2(1) and the second subparagraph of Article 4(4) of the 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 (‘the Sixth Directive’)

must be interpreted as meaning that services provided for consideration between persons belonging to the same group – formed by persons who, while legally independent, are closely bound to one another by financial, economic and organisational links – designated as a single taxable person by a Member State, are not subject to value added tax (VAT), even where the VAT due or paid by the recipient of those services cannot be subject to an input deduction.

Signatures

[Signatures]

( *1 ) Language of the case: German.

OPINION OF ADVOCATE GENERAL

RANTOS

delivered on 16 May 2024 ¹

(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

1Do 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?

2Those, 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

3The 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.

4The 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

5The 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.

6Article 2 of the Sixth Directive provided:

‘The following shall be subject to [VAT]:

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

…’

7Article 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

8Paragraph 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

9The 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.

10S, 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.

11For 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.

12The 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.

13The 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.

14Following 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.

15Moreover, 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.

16The 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

17In 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 5257 and thus increased the VAT by EUR 841.12.

18The 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.

19The 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.

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

21According 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.

22The 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 the Court of Justice held that the second subparagraph of Article 4(4) of the Sixth Directive does not preclude the organisation of a VAT group such as that at issue under German law, in which the controlling company is designated as the single taxable person, only provided that this entails no risk of tax losses.

23In those circumstances, the Bundesfinanzhof (Federal Finance Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

Does the bringing together of several persons into a single taxable person, as provided for in the second subparagraph of Article 4(4) of [the Sixth Directive], have the effect of removing supplies of goods or services made for consideration between those persons from the scope of [VAT] as defined in Article 2(1) of that directive?

Do supplies of goods or services made for consideration between those persons fall within the scope of [VAT] in any event in the case where the recipient of the supply of goods or services is not (or is only partly) entitled to deduct input tax, as there is otherwise a risk of tax losses?’

24Written observations were submitted to the Court by S, the German Government and the European Commission.

IV. Analysis

25By its two questions referred for a preliminary ruling, which should, in my view, be dealt with together, the referring court asks, in essence, whether Article 2(1) and the second subparagraph of Article 4(4) of the Sixth Directive must be interpreted as meaning that supplies of services effected for consideration between persons forming part of a VAT group – in accordance with the latter provision – do not fall within the scope of VAT, and whether this is the case, in any event, where the recipient of the supply of goods or services is not (or is only partly) entitled to deduct input tax, which would entail a risk of tax losses.

26The two questions referred in the present case therefore seek to ascertain whether internal transactions between the members of a VAT group must be treated as transactions subject to VAT. In that regard, the Court has not yet had the opportunity to rule expressly on that question.

27The referring court states that the doubts underlying those two questions arise from two recent judgments of the Court, namely the judgments in Finanzamt T I and Diakonie. It also states that, according to the Court’s case-law, internal transactions between members of a VAT group are not taxable.

28However, it is apparent from a reading of the order for reference that the referring court tends to take the view that, under EU law, those internal transactions should be regarded as subject to VAT. By contrast, the three parties which submitted observations to the Court take the opposite view, that is to say, that such internal transactions do not fall within the scope of VAT.

29The answer to the two questions referred for a preliminary ruling in the present case requires clarification of the interaction between Article 2(1) of the Sixth Directive, which, under that directive, determined the scope of VAT, and the second subparagraph of Article 4(4) of that directive, which permitted each Member State to allow economic operators established in the territory of that Member State to form a VAT group. ⁸ In order to determine the interaction between those two provisions, it is first necessary to interpret them.

30In that context, it should be noted that, in accordance with settled case-law of the Court, in interpreting provisions of EU law, it is necessary to consider not only their wording but also their context and the objectives pursued by the legislation of which they form part. ⁹

31Furthermore, it follows from the need for uniform application of EU law and from the principle of equality that the terms of provisions of EU law, such as the provisions relevant to the present case, which make no express reference to the law of the Member States for the purpose of determining their meaning and scope must normally be given an autonomous and uniform interpretation throughout the European Union. ¹⁰

A. The literal interpretation of the relevant provisions

32The referring court considers that the wording of the relevant provisions in this case supports the view that internal transactions are taxable. That is apparent from the fact that Article 2(1) of the Sixth Directive makes no distinction, as regards taxability, between a VAT group’s internal transactions and the services supplied for consideration to third parties. According to the referring court, the interpretation of the second subparagraph of Article 4(4) of that directive permits, on the other hand, both the inference that internal transactions are taxable and the inference that they are not.

33In that regard, so far as concerns, in the first place, Article 2 of the Sixth Directive, that provision, as recalled above, establishes the scope of VAT. ¹¹ Article 2(1) thereof provides, inter alia, that the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such is to be subject to VAT.

34Moreover, it is apparent from settled case-law that ‘a supply of services is taxable only if there exists between the service supplier and the recipient a legal relationship in which there is a reciprocal performance’, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient. ¹²

35It follows therefore explicitly from the wording of Article 2(1) of the Sixth Directive that, in order to fall within the scope of VAT, the supply of goods or services in question must be effected by ‘a taxable person’. It follows, a contrario, that if a supply of goods or services is effected by a person who cannot be regarded as a ‘taxable person’, that supply is not subject to VAT. Determining the scope of the concept of ‘taxable person’ is therefore of crucial importance for the purpose of determining whether or not certain transactions are taxable. ¹³

36The concept of ‘taxable person’ is defined, in general terms, in Article 4(1) of the Sixth Directive, under which taxable person is to mean any person who ‘independently’ carries out any economic activity specified in paragraph 2 of that article, whatever the purpose or results of that activity.

37In that regard, it is clear from the case-law of the Court that, to ensure the uniform application of the Sixth Directive, the notion of ‘taxable person’ defined in Title IV thereof must be given an autonomous and uniform interpretation. ¹⁴

38So far as concerns, in the second place, the second subparagraph of Article 4(4) of the Sixth Directive, ¹⁵ it is apparent from its wording that that provision permits each Member State to regard a number of entities as a single taxable person if they are established in the territory of that Member State and if, although they are legally independent, they are closely bound to one another by financial, economic and organisational links. The application of that article is not, according to its wording, made subject to other conditions. Nor does it provide that the Member States are able to impose other conditions on economic operators in order to form a VAT group. ¹⁶

39According to settled case-law, the effect of implementing the scheme established in the second subparagraph of Article 4(4) of the Sixth Directive is that national legislation adopted on the basis of that provision allows entities which are bound to one another by financial, economic and organisational links no longer to be treated as separate taxable persons for the purposes of VAT but to be treated as a single taxable person. Thus, where that provision is implemented by a Member State, the closely linked entity or entities within the meaning of that provision cannot be treated as a taxable person or persons within the meaning of Article 4(1) of the Sixth Directive. ¹⁷

40It follows, also according to that settled case-law, that treatment as a single taxable person under the second subparagraph of Article 4(4) of the Sixth Directive precludes members of the VAT group from continuing to submit VAT declarations separately and from continuing to be identified, within and outside their group, as taxable persons, since the single taxable person alone is authorised to submit such declarations. That provision therefore necessarily requires, where it is implemented by a Member State, the national implementing legislation to provide that the taxable person is a single taxable person and that a single VAT number be allocated to the group. ¹⁸

41It therefore follows from the case-law of the Court to which I have just referred that where several legally independent persons form a VAT group within the meaning of the second subparagraph of Article 4(4) of the Sixth Directive, those persons are no longer treated as separate taxable persons and together constitute, for the purposes of VAT, a single taxable person. That single taxable person will be either the VAT group itself or – if provided for by the relevant national legislation and as the Court stated in the judgments in Finanzamt T I and Diakonie – one of its members, namely the controlling company of that group, where that controlling company is in a position to impose its will on the other entities forming part of that group and provided that its designation as a single taxable person for VAT purposes does not entail a risk of tax losses. ¹⁹

42It follows from the fact that a VAT group is considered as a single taxable person, pursuant to the wording of the second subparagraph of Article 4(4) of the Sixth Directive, that the supplies of services made by a third party to a member of the VAT group must be considered, for VAT purposes, to have been made not to that member but to the whole VAT group to which that member belongs ²⁰ and vice versa. ²¹

43The literal analysis of the two relevant provisions which has been carried out, in the light of the case-law of the Court, in points 38 to 40 of this Opinion, makes it possible to determine the interaction between those two provisions.

44That analysis shows, first, that under Article 2(1) of the Sixth Directive, in order for a supply of goods or services to fall within the scope of VAT, it must be carried out by a ‘taxable person’. Secondly, that analysis also shows that the VAT group is a single taxable person and that the entities belonging to that VAT group are no longer treated, individually, as separate taxable persons. The necessary coordination between those two findings supports a combined interpretation of the two provisions, to the effect that internal transactions, that is to say, services provided for consideration between the members of a VAT group, do not fall within the scope of VAT.

45Indeed, the opposite approach, according to which services supplied by one member of the VAT group to another member of the same VAT group (or to the VAT group itself) would constitute transactions subject to VAT under Article 2(1) of the Sixth Directive, would presuppose that that member was a taxable person under that provision, which is incompatible with the nature of the VAT group as a single taxable person, as established in the wording of the second subparagraph of Article 4(4) of that directive and in the settled case-law of the Court referred to in points 38 to 40 of this Opinion.

46The establishment of a VAT group initiates the tax liability of the VAT group and terminates the separate tax liability of those of its members who were taxable persons for VAT purposes before joining the group, and the VAT treatment of the group’s transactions, both between entities within the VAT group and to and from entities outside the group, is comparable to the VAT treatment of a single taxable person operating individually. ²²

47It follows that a person which, by reason of the fact that it belongs to a VAT group, is no longer treated as a taxable person for VAT purposes cannot be considered as carrying out, on an individual basis, a taxable supply of goods or services either outside the group, that is to say, to third parties, or within the VAT group to which it belongs, that is to say, to other members of the same group. Outside the VAT group, the supply of goods or services will be considered, for VAT purposes, as having been made by the single taxable person, that is to say, in principle, the VAT group itself, which will be liable for the tax relating thereto. ²³ Within the group, internal transactions between the individual members of the group are considered as having been carried out by the group for itself and, consequently, do not exist for VAT purposes. ²⁴ As (reciprocal) transactions between entities forming part of a single taxable person, they constitute, for VAT purposes, non-taxable ‘internal flows of funds’, unlike taxable transactions carried out with third parties. ²⁵

48Such an interpretation of the relevant provisions, as is apparent from their literal analysis, is also consistent, first, with the interpretation in the Guidelines resulting from the 119th meeting of the VAT Committee of 22 November 2021, ²⁶ which, though not binding, nevertheless constitute, according to the case-law of the Court, an aid to the interpretation of the Sixth Directive. ²⁷ Secondly, it is also consistent with the interpretation in the Commission’s 2009 communication on VAT groups. ²⁸

49Accordingly, it must next be ascertained whether the interpretation of the relevant provisions resulting from their literal analysis, in the light of the case-law of the Court, is confirmed by their contextual and teleological interpretation.

B. The contextual interpretation of the relevant provisions

1. The contextual analysis

50The referring court considers that the contextual analysis of the relevant provisions also supports the view that internal transactions are taxable. The members of the VAT group carry out their internal transactions in the course of an ‘independent economic activity’, as set out in Article 4(1) of the Sixth Directive. In its view, the Court’s answer to the fourth question referred in the judgment in Diakonie appears to confirm that analysis.

51In order to address the doubts raised by the referring court from a contextual perspective, it is necessary to consider the relationship between, on the one hand, the condition that an economic activity be carried out ‘independently’, to which the general definition of a taxable person set out in Article 4(1) of the Sixth Directive refers, and, on the other hand, the VAT group scheme deriving from the second subparagraph of Article 4(4) of that directive.

52In that regard, from a contextual perspective, it should first of all be noted that Article 4 is the only article in Title IV of the Sixth Directive, entitled ‘Taxable persons’. As regards the structure of that article, the first paragraph thereof contains the general definition of a taxable person, whilst, as the Commission rightly points out, the other provisions circumscribe and clarify that general concept by including or excluding certain cases.

53In particular, as regards the condition that the economic activity must be carried out ‘independently’, its scope is clarified in the first subparagraph of Article 4(4) of the Sixth Directive, according to which the word ‘independently’ excludes VAT being imposed on employed and other persons 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’.

54It is also clear from the case-law of the Court that, as regards the context of the second subparagraph of Article 4(4) of that directive, it is not apparent from either that provision or the system established by that directive that it is a derogating or special provision which must be interpreted narrowly. Accordingly, the condition relating to the existence of a close financial link cannot be interpreted narrowly. ²⁹

55In addition, the Court has expressly held that the autonomous and uniform interpretation of the notion of ‘taxable person’, referred to in point 37 of this Opinion, is also necessary for that provision despite the optional nature, as regards the Member States, of the scheme that that provision provides, in order to avoid differences in application of that scheme between one Member State and another when it is implemented. ³⁰

56As regards the clarification of the general concept of ‘taxable person’ (as indicated in point 52 of this Opinion) set out in the second subparagraph of Article 4(4) of the Sixth Directive, it explicitly provides that – as follows from the literal analysis set out above – if the conditions laid down by that provision are satisfied, a VAT group forms, on the basis of a legal fiction, a single taxable person for VAT purposes. That ‘mechanism’ presupposes that that single taxable person takes the place of the individual members as taxable person for VAT purposes, irrespective of whether or not those members independently carry out an economic activity as provided for in Article 4(1) of the Sixth Directive.

57In that regard, it should be noted that, in its case-law, the Court has already had occasion to state that the condition that an economic activity be carried out ‘independently’ for the purposes of classification as a taxable person under Article 4(1) of the Sixth Directive is a legal question distinct from that of the categorisation of the VAT group as a single taxable person and that those two questions are not necessarily related. Moreover, that was, in my view, the context of the Court’s answer to the fourth question referred in the judgment in Diakonie which gave rise to the doubts of the referring court. I shall therefore first examine the case-law referred to above before then analysing the relevant part of the judgment in Diakonie.

2. The case-law on the relationship between the condition to carry out an economic activity ‘independently’ and the VAT group scheme

58The first question referred to the Court in the case giving rise to the judgment in Skandia ³¹ concerned whether supplies of services from a main establishment in a third country to its branch in a Member State constituted transactions subject to VAT where that branch belongs to a VAT group.

59As a general rule, according to the case-law of the Court, a main establishment and a branch constitute one and the same taxable person for VAT purposes, unless it is established that the branch carries out an independent economic activity. ³²

60In that context, the Court began by analysing first of all whether or not, in the case in point, the branch was operating independently. It found that this was not the case and that that branch therefore could not itself be characterised as a taxable person within the meaning of the VAT Directive. ³³

61Nevertheless, the Court held that, since that branch belonged to a VAT group and thus formed with the other members of that group a single taxable person, which was distinct from the main establishment, for VAT purposes, the services supplied by the main establishment to its – non-independent – branch, which was a member of a VAT group, were considered not to be supplied to that branch but had to be regarded as being supplied to the VAT group and therefore constituted transactions subject to VAT. ³⁴

62The Court subsequently confirmed that case-law in the Danske Bank case, ³⁵ in which it applied the same principle to what might be described as the ‘reverse’ situation, in which it was the main establishment which belonged to a VAT group.

63That case-law shows that although carrying out an economic activity ‘independently’ is, according to the very wording of Article 4(1) of the Sixth Directive, necessary for a person to be classified as a taxable person, this does not prevent an entity which does not satisfy that condition from nonetheless falling within the scope of VAT where it belongs to a VAT group and thus is part of a single taxable person within the meaning of Article 4(4) of that directive.

64The question of compliance with the condition that an economic activity be carried out ‘independently’, set out in Article 4(1) of that directive, and the legal consequences of belonging to a VAT group thus constitute two distinct legal questions which are not necessarily connected. Accordingly, compliance or non-compliance with that condition has no bearing on those consequences.

3. The Court’s answer to the fourth question referred in the judgment in Diakonie

65It is against that background of interaction, indeed tension, between the condition relating to the independent nature of an economic activity under Article 4(1) of the Sixth Directive and the legal scheme governing VAT groups that it is necessary to examine the fourth question which was analysed by the Court in the judgment in Diakonie.

66That question was referred to the Court in a situation in which the (again German) national legislation at issue provided that the single taxable person for VAT purposes was not the VAT group as such, but a member thereof, namely its controlling company, to which all the turnover achieved by the entities forming part of the VAT group was attributed and which is liable for the VAT corresponding to all of that turnover. ³⁶

67Moreover, according to that national legislation, the economic and professional activities of the entities integrated into the controlling company of the tax group of which those entities formed part were not regarded as being carried out independently, ³⁷ on account of the relationship of authority and subordination, (now) classified as an ‘integration together with rights to intervene’, between the controlling company and the other entities. ³⁸

68In that context, the referring court (the same as that in the present case) had raised, in particular, a question concerning the possibility of treating, by categorisation, that is to say, ‘en bloc’, the entities forming part of the VAT group as non-independent for the purposes of Article 4(1) of the Sixth Directive on the basis of that relationship of subordination.

69That court had asked in particular whether Article 4(1) and the first subparagraph of Article 4(4) ³⁹ of the Sixth Directive permitted a Member State to regard, by categorisation, a person as not being independent within the meaning of Article 4(1) of that directive if that person forms part of a VAT group in such a way that the controlling company was able to impose its will on the person and thus prevent the person from forming his or her own will, which diverges from that of the controlling company.

70It was in that context that the Court held that the second subparagraph of Article 4(4) of the Sixth Directive, read in conjunction with the first subparagraph of Article 4(1) of that directive, should be interpreted as precluding a Member State from classifying, by categorisation, given entities as non-independent, where those entities are integrated, in financial, economic and organisational terms, into the controlling company of a VAT group.

71In other words, the Court held that the fact that an entity is a member of a VAT group cannot be regarded as automatically meaning that that entity does not carry out economic activities ‘independently’ under Article 4(1) of the Sixth Directive.

72The judgment in Diakonie therefore confirms, in accordance with the case-law referred to in points 58 to 64 of this Opinion, that the condition relating to the carrying out of an economic activity independently within the meaning of Article 4(1) of that directive and the consequences arising from an entity’s membership of a VAT group are distinct legal questions and that membership of such a group has no bearing on the definition of an independent economic activity under Article 4(1) of that directive.

73Accordingly, the judgment in Diakonie in no way calls into question the characterisation of a VAT group as a single taxable person, having regard to the considerations and case-law referred to in points 38 to 42 of this Opinion, case-law to which that judgment expressly refers. It follows that that judgment cannot call into question the consequences of that characterisation, as set out in points 43 to 47 of this Opinion, in the light of the classification of the VAT group and its members as taxable person for VAT purposes, both outside and within the group itself. ⁴⁰

74Moreover, in the case which gave rise to the judgment in Diakonie, the Court did not have to address, and therefore did not rule on, the question of whether or not the VAT group’s internal transactions were taxable for VAT purposes.

75In the light of the foregoing contextual analysis and the relevant case-law mentioned above, even if persons belonging to a VAT group ‘independently’ carry out economic activities within the meaning of Article 4(1) of the Sixth Directive, this has no bearing on the fact that, because they belong to a VAT group, those persons together constitute, for VAT purposes, a single taxable person and thus are no longer treated as separate taxable persons for the purposes of VAT, either in the external relationships or in the internal relationships within the VAT group.

76It follows that, contrary to the view taken by the referring court, the fact that the members of the VAT group carry out their internal transactions in the course of an ‘independent economic activity’, as provided in Article 4(1) of the Sixth Directive, does not support the argument that those internal transactions are taxable and cannot call into question the interpretation of the relevant provisions referred to in points 43 to 47 of this Opinion.

C. The teleological interpretation of the relevant provisions

77The referring court considers that the objectives pursued by the second subparagraph of Article 4(4) of the Sixth Directive should not require non-taxation of internal transactions. The procedural simplification intended to ensure that, on account of the establishment of the VAT group, it is no longer necessary to lodge several tax returns should have no influence on the chargeability of the tax, with the result that internal transactions are subject to VAT. If, on the other hand, the abovementioned simplification is substantive in nature, this would be understandable where the member of the group benefiting from the internal transaction is entitled to deduct input VAT, so that the tax liability and the right to deduct input VAT offset each other. However, a general non-taxation of internal transactions, which applied also where the member of the group which benefits from the internal transaction is not entitled to deduct input VAT, would lead to tax losses and, ultimately, not to administrative simplification but to no tax being levied. Nor does the objective of preventing certain abuses justify the non-taxation of internal transactions. On the contrary, it could be regarded as constituting abuse for members of the group which are not entitled to deduct VAT to obtain a tax advantage.

78In order to address the doubts expressed by the referring court, it is necessary to determine the rationale, that is to say, the justification, for VAT grouping, as provided for in the second subparagraph of Article 4(4) of the Sixth Directive.

79In that regard, it should be recalled that, as regards the objectives pursued by the second subparagraph of Article 4(4) of the Sixth Directive, the Court has stated that it is apparent from the Commission proposal which resulted in the adoption of that directive (COM(73) 950 final) that the EU legislature, by adopting that provision, intended, either in the interests of simplifying administration or with a view to combating abuses such as the splitting-up of one undertaking among several taxable persons so that each might benefit from a special scheme, to ensure that Member States would not be obliged to treat as taxable persons those whose ‘independence’ is purely a legal technicality. ⁴¹

80The referring court expressly refers to that case-law of the Court, but focuses exclusively on the objectives of simplifying administration and combating abuses. However, as is clear from the preceding point, VAT grouping is primarily intended to ensure that Member States are not obliged to treat as taxable persons those whose ‘independence’ is purely a legal technicality. It is thus expressly an instrument which allows Member States to distinguish the issue of VAT liability from that of the legal organisation of undertakings.

81In that regard, it should be noted that VAT liability can and does have an impact on the structure and functioning of economic operators. ⁴² It may influence the organisational choices made by undertakings. Accordingly, an undertaking may choose either to in-source certain supplies of goods or services, using an internal operational unit of the undertaking itself, or to outsource them to an entity which is legally distinct but belongs to the group (for example, a production or services company). ⁴³ Accordingly, the question of whether an economic operator’s activities are in-sourced or outsourced (within the group) may depend not only on operational or economic considerations, but may also have to take account of consequences arising from VAT liability.

82However, in principle, it should not be relevant to take into account for VAT purposes whether part of an undertaking’s activity is outsourced to a separate entity (potentially a separate taxpayer) forming part of the group or whether it is carried out by an internal operating unit of a larger undertaking. In fact, it is the activity and not the legal form that defines status as a taxable person for VAT purposes. ⁴⁴

83VAT grouping therefore allows the Member States to diminish the influence of VAT on the way economic operators organise themselves. Thus, VAT grouping supports ‘organisational’ fiscal neutrality by enabling appropriate business structures without negative consequences in terms of VAT liability. ⁴⁵ However, subject to the considerations set out in point 85 of this Opinion, that function presupposes that the group’s internal transactions are not taxable. It is only if the tax regime relating to VAT is the same where the supply is in-sourced or outsourced (within the group) that the ‘organisational’ fiscal neutrality referred to above can be guaranteed.

84The observation that the objective of guaranteeing ‘organisational’ fiscal neutrality is the fundamental and original function of VAT grouping follows not only from the wording of the case-law of the Court cited in point 78 of this Opinion, but also from the origin of the provision which provides for it. The concept of a VAT group was introduced into EU law by Second Council Directive 67/228/EEC, ⁴⁶ based on the German ‘Organschaft’ legislation, ⁴⁷ the core element of which, as the referring court also points out, ⁴⁸ was the non-taxable nature of internal transactions in order to avoid the cumulation of taxes. That concept has subsequently evolved through successive amendments made by the Sixth Directive and, most recently, by the VAT Directive. ⁴⁹

85However, as noted by the referring court, the function of guaranteeing ‘organisational’ fiscal neutrality lost some of its importance when the possibility of deducting input VAT was introduced. Should such a possibility exist, the tax liability and the right to deduct input VAT offset one other, with the result that, where such deduction is possible, the VAT group scheme has no material scope and its justification lies fundamentally in administrative simplification of a procedural nature. In that regard, it should be noted that that administrative simplification also benefits the tax authorities as it enables them to avoid a number of checks.

86The objective of guaranteeing the ‘organisational’ fiscal neutrality of that scheme nevertheless remains entirely valid for undertakings which do not have the right to deduct input VAT. For those undertakings, if the Member State in question has made use of the option of permitting the establishment of VAT groups – and provided that the internal transactions are not taxable – it is immaterial whether those undertakings supply the goods or services themselves or through a controlled undertaking. In both cases, those supplies of goods or services will not be burdened by VAT. ⁵⁰ It is therefore precisely for those undertakings that the rationale for guaranteeing ‘organisational’ fiscal neutrality remains valid. Accordingly, for those undertakings, VAT grouping not only has a procedural scope, as an administrative simplification, but also retains a material scope. ⁵¹

87In that context, it is relevant to recall that, in the judgment of 9 April 2013, Commission v Ireland (C‑85/11, EU:C:2013:217), the Grand Chamber of the Court of Justice expressly held that there was no reason, in particular in the light of the objectives of the provision of the VAT Directive providing for VAT groups, to consider that non-taxable persons, which cannot therefore charge VAT, could not be included in a VAT group. ⁵²

88Finally, as regards the risk of alleged tax losses mentioned by the referring court, I would note the following.

89First, it is not relevant to rely on the judgments in Finanzamt T I and Diakonie, and paragraphs 50 and 57 thereof respectively, to support the argument that internal transactions between members of a VAT group are taxable concerning a risk of tax losses. On the one hand, in those judgments, the Court did not examine the question whether internal transactions are taxable. On the other hand, it is clear from a reading of those judgments, by contrast, that the Court’s reference therein to the risk of tax losses, far from being a general reference, was limited to the issue of attribution of the role of a single taxable person, under the national legislation at issue, to the VAT group’s controlling company and not to the VAT group as such. The Court held that it is precisely that attribution which should not entail a risk of tax losses. It follows that it is only if, in accordance with national law, the attribution of that role leads to the same result as if the VAT group as such were regarded as the single taxable person for VAT purposes – and if there is therefore no risk of tax receipts relating to services provided and received by members of the group not being covered – that it would be possible to attribute the status of single taxable person to the group’s controlling company. It is clear that that reasoning has no connection with the issue of whether a VAT group’s internal transactions are taxable.

90Secondly, I note that, in the case which gave rise to the judgment in Commission v Ireland referred to above, in order to prove the infringement alleged against the Member State in question, the Commission had raised arguments based on the risk of tax losses arising from the possibility for non-taxable persons to join a VAT group, which coincided with, in essence, the doubts raised by the referring court. ⁵³ However, the Court did not accept those arguments and dismissed the action brought by the Commission, which demonstrates that it has already considered that line of argument to be irrelevant.

91Thirdly, I have doubts as to whether, in fact, the risk of tax losses envisaged by the referring court actually exists. In support of its uncertainties as to the existence of such a risk of tax losses, that court makes a comparison between the two liabilities to tax connected with the legal positions arising in the presence and in the absence of a tax group as provided for in Article 4(4) of the Sixth Directive. ⁵⁴ However, in the light of points 81 to 83 and 86 of this Opinion, the member of the group which benefits from the internal transaction and which is not entitled to deduct VAT could, in reality, choose to ‘in-source’, using one of the undertaking’s internal organisational units, the supply of goods or services received by members of the VAT group, so that the result of the transaction, for VAT purposes, would, in any event, be identical. Thus, for example, in this instance, the hospital at issue in the case in the main proceedings could still have cleaning services carried out by an internal unit rather than ‘outsourcing’ them to a legal entity forming part of the VAT group. For the purposes of VAT, nothing would change. Rather, that hospital would be encouraged to opt for such a solution so as not to have to pay VAT, if there was no VAT grouping without the taxation of internal supplies. In such a situation, however, the aforementioned ‘organisational’ fiscal neutrality would not be guaranteed.

92From that point of view, if there is no tax advantage for the members of the group which are not entitled to deduct VAT, the doubts of the referring court concerning the objective of the VAT group scheme consisting in preventing certain abuses are not justified.

93It follows from all the foregoing considerations that, contrary to the view of the referring court, the objectives pursued by the second subparagraph of Article 4(4) of the Sixth Directive, read in conjunction with Article 2(1) thereof, do not preclude an interpretation of those provisions, to the effect that a VAT group’s internal transactions are not subject to VAT.

V. Conclusion

Conclusion

94In the light of the foregoing considerations, I propose that the Court answer the questions referred for a preliminary ruling by the Bundesfinanzhof (Federal Finance Court, Germany) as follows:

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, as amended by Council Directive 2000/65/EC of 17 October 2000,

must be interpreted as meaning that supplies of services for consideration between persons forming part of a group formed by legally independent persons, but closely bound to one another by financial, economic and organisational links, under the second subparagraph of Article 4(4) of Sixth Council Directive 77/388, as amended by Directive 2000/65, do not fall within the scope of value added tax (VAT), even where the recipient of the supply of goods or services is not (or is only partly) entitled to deduct input VAT.

¹ Original language: French.

² Group formed by legally independent persons, but closely bound to one another by financial, economic and organisational links (‘VAT group’).

³ OJ 1977 L 145, p. 1, as amended by Council Directive 2000/65/EC of 17 October 2000 (OJ 2000 L 269, p. 44) (‘the Sixth Directive’).

⁴ OJ 2006 L 347, p. 1.

⁵ See paragraphs 11 to 19 of that judgment.

⁶ In accordance with Paragraph 3(9a)(2) of the UStG, read in the light of Article 6(2)(b) of the Sixth Directive.

⁷ See, respectively, paragraph 50 and paragraph 57 of those judgments.

⁸ Those two provisions now correspond, respectively, to Article 2(1)(a) and (c) and Article 11 of the VAT Directive.

⁹ See, in particular, the judgments in Finanzamt T I, paragraph 35, and in Diakonie, paragraph 43.

¹⁰ See, to that effect, judgment of 25 April 2013, Commission v Sweden (C‑480/10, EU:C:2013:263, paragraph 33 and the case-law cited).

¹¹ Article 2 of the Sixth Directive is the only article in Title II of that directive, entitled ‘Scope’.

¹² Judgment of 24 January 2019, Morgan Stanley & Co International (C‑165/17, EU:C:2019:58, paragraph 37 and the case-law cited).

¹³ See, to that effect, Opinion of Advocate General Kokott in Latvijas Informācijas un komunikācijas tehnoloģijas asociācija (C‑87/23, EU:C:2024:222, point 2).

¹⁴ See, to that effect, by analogy, judgment of 25 April 2013, Commission v Sweden (C‑480/10, EU:C:2013:263, paragraph 34).

¹⁵ Article 4 of the Sixth Directive is the only article in Title IV of that directive, entitled ‘Taxable persons’.

¹⁶ See the judgments in Finanzamt T I, paragraph 38, and in Diakonie, paragraph 44, and the case-law cited.

¹⁷ See the judgments in Finanzamt T I, paragraph 39, and in Diakonie, paragraph 45, and the case-law cited. Emphasis added.

¹⁸ See the judgments in Finanzamt T I, paragraph 40, and in Diakonie, paragraph 46, and the case-law cited.

¹⁹ See, to that effect, the judgments in Finanzamt T I, paragraph 53, and in Diakonie, paragraph 60. In that regard, see also point 89 of this Opinion.

²⁰ See judgments of 17 September 2014, Skandia America (USA), filial Sverige (C‑7/13, ‘the judgment in Skandia’, EU:C:2014:2225, paragraph 29), and of 18 November 2020, Kaplan International Colleges UK (C‑77/19, EU:C:2020:934, paragraph 46).

²¹ Judgment of 11 March 2021, Danske Bank (C‑812/19, EU:C:2021:196, paragraph 28).

²² Opinions of Advocate General Jääskinen in Commission v Ireland (C‑85/11, EU:C:2012:753, point 42) and in Commission v Sweden (C‑480/10, EU:C:2012:751, point 40).

²³ See, to that effect, judgment of 11 March 2021, Danske Bank (C‑812/19, EU:C:2021:196, paragraph 28), and the judgment in Skandia, paragraph 29.

²⁴ Opinions of Advocate General Jääskinen in Commission v Ireland (C‑85/11, EU:C:2012:753, point 42) and in Commission v Sweden (C‑480/10, EU:C:2012:751, point 40), as well as Opinion of Advocate General Mengozzi in Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:212, point 49).

²⁵ See, to that effect and by analogy, judgment of 24 January 2019, Morgan Stanley & Co International (C‑165/17, EU:C:2019:58, paragraph 38).

²⁶ Document B – taxud.c.l (2022)2315070-1034, in particular, p. 24, point 3.

²⁷ See, by analogy, order of 29 October 2020, Weindel Logistik Service (C‑621/19, EU:C:2020:889, paragraph 48).

²⁸ See point 3.4.3 of the Communication to the Council and the European Parliament on the VAT group option provided for in Article 11 of Council Directive 2006/112/EC on the common system of [VAT] (COM (2009) 325 final, of 2 July 2009).

²⁹ See the judgments in Finanzamt T I, paragraph 42, and in Diakonie, paragraph 48, and the case-law cited.

³⁰ See, to that effect, by analogy, judgment of 25 April 2013, Commission v Sweden (C‑480/10, EU:C:2013:263, paragraph 34).

³¹ In that case, the question referred to the Court for a preliminary ruling concerned the interpretation of Article 2(1) and Articles 9 and 11 of the VAT Directive.

³² See, judgment of 24 January 2019, Morgan Stanley & Co International (C‑165/17, EU:C:2019:58, paragraph 35).

³³ See paragraph 26 of the judgment in Skandia.

³⁴ See paragraphs 28, 30 and 31 of the judgment in Skandia.

³⁵ Judgment of 11 March 2021, Danske Bank (C‑812/19, EU:C:2021:196, paragraphs 17 to 35).

³⁶ See paragraphs 21 and 22 of the judgment in Diakonie.

³⁷ See the first sentence of Paragraph 2(2)(2) of the UStG. See also paragraph 22 of the judgment in Diakonie.

³⁸ See paragraph 20 of the judgment in Diakonie. For a more detailed account of that issue, see, also, paragraph 85 et seq. of the order for reference in that case.

³⁹ In that case, the referring court asked whether the abovementioned condition relating to the subordination of the entities forming a tax group (within the meaning of the second subparagraph of Article 4(4) of the Sixth Directive) to the controlling company of that group, required under German law, for the purposes of assessing the existence of a tax group could be justified on the basis of a combined reading of Article 4(1) and the first subparagraph of Article 4(4) of the Sixth Directive, through ‘assimilating’ to some extent the entities belonging to the VAT group to employees under the latter provision. See the judgment in Diakonie, paragraphs 28 to 30.

⁴⁰ The question of whether or not an entity which is a member of the VAT group carries out an economic activity independently could, where appropriate, have consequences in the context of the internal relations within the VAT group as regards the tax burden borne by each of its members. See, in that regard, the judgment in Diakonie, paragraph 27.

⁴¹ See the judgments in Finanzamt T I, paragraph 43, and in Diakonie, paragraph 49, and the case-law cited.

⁴² See, to that effect, Opinion of Advocate General Jääskinen in Commission v Ireland (C‑85/11, EU:C:2012:753, point 49).

⁴³ See, to that effect, Opinion of Advocate General Kokott in Adient (C‑533/22, EU:C:2024:106, point 33).

⁴⁴ Opinion of Advocate General Jääskinen in Commission v Ireland (C‑85/11, EU:C:2012:753, point 50).

⁴⁵ Opinions of Advocate General Jääskinen in Commission v Ireland (C‑85/11, EU:C:2012:753, point 49) and, to that effect, of Advocate General Kokott in Adient (C‑533/22, EU:C:2024:106, point 33).

⁴⁶ Second Council Directive of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes – Structure and procedures for application of the common system of value added tax (OJ, English Special Edition 1967 (I), p. 16).

⁴⁷ Thus, the explanatory memorandum to that Second Council Directive 67/228 stated as follows: ‘The law currently in force in certain Member States treats persons who are independent from a juridical point of view, but organically interlinked by economic, financial or organisation ties, as one single taxpayer, so that transactions among these persons do not constitute tax acts. In this view, firms forming an Organschaft are therefore, subject to the same fiscal conditions as an integrated firm which is one single juridical person’. Bulletin of the European Economic Communities, Supplement 5/65, in particular, p. 20 (available only in English).

⁴⁸ See paragraph 47 et seq. of the order for reference and, in particular, paragraph 54.

⁴⁹ For an overview of the origin of the provision relating to VAT groups in EU law, see Opinion of Advocate General Jääskinen in Commission v Ireland (C‑85/11, EU:C:2012:753, points 29 to 36), and Pfeiffer, S., VAT Grouping from a European Perspective, IBFD Doctoral Series, Vol. 34, 2015.

⁵⁰ See, to that effect, Opinion of Advocate General Kokott in Adient (C‑533/22, EU:C:2024:106, point 33, footnote 13).

⁵¹ See, to that effect, Opinion of Advocate General Kokott in Adient (C‑533/22, EU:C:2024:106, point 33, footnote 13).

⁵² See, specifically, as regards Article 11 of the VAT Directive, paragraph 50 of that judgment.

⁵³ Judgment of 9 April 2013, Commission v Ireland (C‑85/11, EU:C:2013:217, paragraph 24).

⁵⁴ Therefore, according to the referring court, in the first comparison scenario (absence of a tax group/non-taxability of internal transactions), there would be a tax debt which does not give rise to a deduction of input tax. By contrast, in the second scenario of the comparative analysis (tax group with no taxation of internal transactions), any tax debt is automatically excluded. See paragraphs 31 and 32 of the order for reference.