CJEU questions Danish 100% ownership requirement for VAT groups

The Sampension Livsforsikring case concerned a life insurance company that owned 94% of its administration company and was denied VAT grouping because Danish law requires full ownership where a VAT group includes entities carrying out exempt or non-economic activities. The CJEU found that an absolute 100% ownership requirement generally goes beyond what is required to establish a “close financial link” under Article 11 of the VAT Directive. The Court also rejected the argument that a potential loss of VAT revenue, in itself, is sufficient to justify such a restriction as an anti-abuse measure. The CJEU left it to the Danish courts to assess whether the requirement can nevertheless be justified as a necessary and proportionate measure to combat VAT fraud or avoidance. The Court further confirmed that Article 11 does not have direct effect, meaning taxpayers cannot rely directly on the provision to obtain VAT grouping contrary to national law.

Key takeaway / recommendation

While the final impact will depend on the forthcoming judgment from the Eastern High Court of Denmark, businesses, particularly those engaged in VAT-exempt activities, should consider the potential implications for their VAT profile and potential for new VAT group arrangements. The judgment may also prompt EU-wide renewed scrutiny of national VAT grouping rules and encourage challenges to restrictions that exceed the requirements of the VAT Directive.

Reference

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