The European Court of Justice Advocate General ruled that EU law does not preclude national legislation requiring 100% ownership for VAT-exempt entities to join VAT groups, where the rule aims to prevent tax advantages contrary to the scheme's purpose.
The opinion in Case T-268/25 addressed Danish VAT group rules that require full ownership when one entity provides exempt services or engages in non-economic activities. A Danish insurance company providing VAT-exempt services was denied VAT group registration with its management company despite holding a 94% ownership stake.
Tax Avoidance Analysis
Advocate General Brkan defined tax avoidance as obtaining tax advantages contrary to tax law's purpose, without requiring taxpayer intent. The AG found that VAT group schemes should prevent creation of unintended tax advantages rather than create them, noting that exempt entities joining groups can exercise deduction rights they could not claim independently.
The opinion established that while close financial links under Article 11 of the VAT Directive cannot support a 100% ownership requirement, Member States may impose such conditions under anti-avoidance provisions. Previous case law confirmed that majority shareholding sufficiently establishes close financial links.
Proportionality Requirements
The referring Danish court must assess whether the ownership requirement complies with proportionality principles. The AG noted concerns that Denmark's rule only partially addresses tax avoidance since it permits exempt entities in 100%-owned groups despite similar tax advantages arising.
The analysis must consider whether less restrictive measures could achieve anti-avoidance objectives while preserving administrative simplification benefits for legitimate activities. The court must also evaluate compliance with fiscal neutrality principles governing equal treatment of comparable economic operators.
Context
The ruling provides crucial guidance on Member States' authority to restrict VAT grouping schemes under Article 11 of the VAT Directive. The decision affects how jurisdictions can balance administrative simplification with preventing unintended tax advantages, particularly for financial services providers subject to regulatory requirements mandating separate legal entities.
