Germany: Requiring 100% ownership for VAT grouping incompatible with EU law (General Court decision); other VAT developments
100% ownership condition goes beyond what is necessary to establish close financial links.
The General Court of the European Union on July 15, 2026, held (case T-268/25) that Article 11 of the VAT Directive precludes national legislation that makes the formation of a VAT group conditional on one member holding 100% of the capital of the other members, unless that condition is justified as a necessary and proportionate anti-abuse measure.
Summary
The taxpayer, a Danish insurance company, had formed a VAT group with its management company, which was initially 100% owned by the taxpayer. Two pension funds subsequently each acquired 3% of the management company's capital, reducing the taxpayer's holding to 94%. Under Danish law, a VAT group containing exempt or non-economic entities required 100% direct or indirect capital ownership. Accordingly, the Danish tax authority terminated the VAT group.
The General Court held that while Article 11 of the VAT Directive allows member states to define requirements for close financial, economic, and organizational links, a mandatory 100% ownership condition goes beyond what is necessary to establish close financial links. The court also held that the 100% ownership condition cannot be justified as an anti-abuse measure because it does not distinguish according to the actual risk of abuse but solely based on capital structure. However, the court also held that Article 11 of the VAT Directive does not have direct effect, meaning taxable persons cannot rely on it directly against national law when national provisions are incompatible and cannot be interpreted in conformity with EU law.
Read a July report prepared by the KPMG member firm in Germany
Other recent VAT developments that may affect businesses in Germany include:
- Tax liability of a tax representative under VAT law (General Court decision)
- Allocation of input VAT for mixed-use buildings (Federal Fiscal Court (BFH) order)
- Recipient perspective in classification of work supplies (BFH order)
- Pass-through of group bonuses (Münster Fiscal Court decision)
- Input VAT refunds for work supplies to private individuals and transition to general VAT assessment procedure (Cologne Fiscal Court decision)