VAT Exemption for VAT Groups: EU General Court Requires the Service-Providing Member To Be Recognised as a Healthcare or Social Welfare Body (T-444/25)

The General Court of the European Union has ruled, in its judgment of 10 June 2026 (Case T-444/25, Staatssecretaris van Financiën v Fiscale Eenheid Stichting X c.s.), that the single taxable person status applicable to VAT groups does not remove the need to verify, member by member, the personal conditions required for healthcare and social welfare VAT exemptions.

A VAT group established under Article 11 of Directive 2006/112/EC may rely on the exemptions set out in Article 132(1)(b) and (g) only where the entity supplying the services to third parties satisfies, in its own right, all the relevant conditions, including — where it is not a body governed by public law — being duly recognised as a hospital, medical care establishment or other duly recognised establishment of a similar nature, or as an organisation recognised as being devoted to social welfare. Recognition granted to another member of the VAT group does not extend to the remaining members.

The dispute arose between the Dutch tax authorities and Stichting X fiscal unity, a VAT group consisting of two foundations and three private limited liability companies engaged in different aspects of care for persons with intellectual disabilities living in adapted residential facilities or other supported housing arrangements.

Within the group, only one of the foundations held the dual recognition required under Dutch law — Article 11(1)(c) and (f) of the Turnover Tax Act 1968, implementing Article 132(1)(b) and (g) of the VAT Directive — as both an institution providing accommodation and care services and a social welfare organisation. However, the services at issue supplied to third parties outside the group — namely, permanent day-and-night remote supervision through technical means from a location separate from the place where care was provided — were supplied by one of the private limited liability companies, “Company Y”, which possessed neither form of recognition.

The VAT group declared and paid VAT on those services during the second quarter of 2016 and subsequently challenged that taxation, arguing that the services should have been exempt. The tax authorities rejected the claim on the grounds that Company Y lacked the required recognition. After proceedings before the Zeeland-West Brabant District Court, the ’s-Hertogenbosch Court of Appeal upheld the VAT group’s position, holding that, because a fiscal unity existed, the exemption requirements should be assessed at group level and that recognition of a single member was sufficient.

The State Secretary for Finance appealed to the Hoge Raad of the Netherlands, which referred questions to the General Court. As a procedural note, the case was decided by the General Court — rather than the Court of Justice — pursuant to Article 50b of the Statute of the Court of Justice of the European Union, which confers jurisdiction on the General Court for certain preliminary ruling proceedings, including VAT matters.

In essence, the Hoge Raad asked whether Article 11 of the VAT Directive, read together with Article 132(1)(b) and (g), requires that supplies made to third parties by a VAT group be carried out by a member which, viewed individually, satisfies all the conditions necessary to benefit from the exemption.

The referring court also raised a subsidiary question concerning the non-profit condition contained in Article 133(a) of the Directive, in the event that a group-wide assessment were considered permissible.

The Court based its answer on four principal considerations.

First, it distinguished between two concepts that the Court of Appeal had conflated. The fact that a member of a VAT group cannot be treated as a taxable person separate from the group — a settled consequence of Article 11, confirmed in cases such as Finanzamt T II and Kaplan International Colleges UK — does not prevent an examination of whether the specific entity supplying the service possesses the characteristics required by the exemption provisions (paragraph 24).

Second, the Court relied on a textual interpretation. Article 132(1)(b) and (g) refers to recognised “establishments”, “entities” or “organisations”, without mentioning the concept of “taxable person” used in Article 11. Combined with the principle that VAT exemptions must be interpreted strictly, this requires the relevant characteristics to be assessed in relation to the entity that actually performs the supply, without depriving the provisions of their practical effect (paragraphs 26, 32 and 33).

Third, the Court adopted a contextual and purposive approach. The purpose of the VAT grouping regime is administrative simplification and the prevention of abuse, objectives that do not justify extending tax benefits that would not otherwise be available absent the existence of the group (paragraph 25). Furthermore, the recognition mechanisms established by Articles 132 and 133 enable Member States to ensure that only entities pursuing the public-interest objectives underlying the exemptions — namely, facilitating access to healthcare and social welfare services by avoiding the additional cost of VAT — benefit from them. That objective would be undermined if recognition granted to one member could be relied upon for supplies made by another member lacking such recognition (paragraphs 37 to 40).

Fourth, the Court invoked the principle of fiscal neutrality. Accepting the VAT group’s position would mean that identical services could be exempt when supplied by a company belonging to a VAT group but taxable when supplied by an independent operator lacking recognition, thereby creating unequal and unjustified treatment between operators carrying out the same activities (paragraph 41).

Having answered the first question in the affirmative, the Court considered it unnecessary to address the second.

The significance of the judgment lies in its clarification that treating a VAT group as a single taxable person does not permit the transfer or sharing of the personal conditions upon which certain VAT exemptions depend. Administrative recognition is not a collective attribute of the VAT group but rather a characteristic belonging to each individual entity.

The Court therefore adopts a strict interpretation of Article 132 of the VAT Directive and prevents the mere creation of a VAT group from expanding the scope of exemptions reserved for specifically authorised entities.

For VAT groups operating in the healthcare and social care sectors, the practical consequence is immediate: it is crucial to identify which entity provides and invoices the services supplied to third parties and whether that entity possesses the necessary recognition and credentials required under applicable law.

At ILIA ETL GLOBAL, we closely monitor European VAT case law and its impact on the structuring of groups and corporate entities. Our tax advisory team can help assess how this doctrine may affect your organisation.