Germany’s BFH broadens the VAT-group financial-integration test

Capital and management can operate together

Section 2(2) no. 2 of the German VAT Act treats a legal person as non-independent where, considering the overall facts, it is financially, economically and organisationally integrated into the controlling enterprise. That implements the option in article 11 of Council Directive 2006/112/EC to treat closely linked persons as a single taxable person.^[1][2][4]

The parent in V R 36/24 held 60% of the subsidiary’s capital but could not alone satisfy the two-thirds majority required for shareholder resolutions. It nevertheless appointed the subsidiary’s sole managing director. Applying its changed case law, the court held that this combination was sufficient for financial integration. The decision is fact-specific: it does not create a general statutory 60% safe harbour, and a later need to appoint a different director could change the result from that point.^[1]

Historic assessments must be aligned

The subsidiary sought cancellation of its own historic VAT assessment because the parent, rather than the subsidiary, would be the taxable person for the VAT group’s transactions. The court held that this relief requires the parent to request a corresponding amendment of its own assessment where that assessment remains open to change. The parent must also surrender the protection otherwise available under section 176(1), sentence 1, no. 3 of the Fiscal Code when a supreme federal court changes the case law previously applied.^[1][3]

The case was remitted because the lower court still had to determine limitation and assessment-change questions and quantify the turnover attributable to the VAT-group period. Groups reviewing German Organschaft positions should therefore test capital, voting and management arrangements together, but also map the procedural position of every affected entity before seeking retrospective treatment. A favourable group-status conclusion does not by itself reopen or synchronise final assessments.^[1][3]