VAT Fiscal Unity – One company by fiction of law or are there exceptions?

VAT Fiscal Unity – One company by fiction of law, or are there exceptions?

When multiple individual companies meet the conditions for a VAT fiscal unity, they are considered as one entrepreneur (solely for VAT purposes). This means, among other things, that no VAT needs to be charged on internal transactions and that a single joint VAT return is filed.

Seemingly a simple legal fiction, from which practice can greatly benefit. Nevertheless, there is considerable discussion about the application and operation of the VAT fiscal unity. A new and ‘logical’ debate concerns the application of the VAT exemption for medical care within a VAT fiscal unity.

What is the issue?

A group of five collaborating healthcare institutions (a VAT fiscal unity), including a foundation and a private limited company (BV), provides care to individuals with intellectual disabilities. The foundation meets the requirements for applying the VAT exemption for medical care. These are ‘subject-related’ conditions. The BV provides 24-hour monitoring services to other healthcare organizations, such as camera surveillance, personal alarms, and emergency calls. These services are essential for the safety of clients in care institutions. The BV does not meet the ‘subject-related’ conditions and therefore, as an individual company, cannot apply the exemption for medical care. Given that both parties are part of a VAT fiscal unity, the question arises whether this fiscal unity as a whole can apply the exemption for medical care. After all, the VAT fiscal unity is considered by legal fiction to be one business.

What did the Supreme Court decide?

The case is apparently so complex that the Supreme Court cannot decide on it itself. This is due to the struggle with the legal fiction of the fiscal unity, under which there is only one entrepreneur for VAT, and the strict requirements for applying the exemption for healthcare activities, which are aimed at the individual care provider (the ‘subject-related’ conditions). In short, does the legal fiction of the fiscal unity take precedence over the ‘subject-related’ conditions for the exemption (or vice versa)?

This contradiction has led the Supreme Court to refer the question to the EU Court of Justice (preliminary questions). The EU Court of Justice is expected to rule on the matter early next year.

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