The concept of independence within the meaning of Articles 9(1) and 10 of the VAT Directive

Abstract: Article 9(1) of the VAT Directive requires a person to independently carry out economic activity in order to be considered as taxable for VAT purposes. Article 10 provides a negative definition of the term “independently”, precluding from the scope of this concept persons that are bound to an employer by a contract of employment or any other legal ties creating the relationship of employer and employee in terms of working conditions, remuneration and employer’s liability. The provision has, however, also been used by the Court of Justice of the European Union (“the Court”) to assess independence in situations related to entities other than natural persons, such as branches and municipal budgetary entities. The purpose of this thesis is to examine the meaning of the term “independently” within the context of Article 9(1) and 10 of the VAT Directive, as well as determining how branches and wholly owned subsidiaries are to be treated in this respect. Firstly, it is examined how Article 10 has been used by the Court when assessing whether a person is to be regarded as performing its activities independently within the meaning of Article 9(1) or not. This is done by studying the case law from the Court dealing with the issue of independence within the context of VAT and discussing the various aspects considered. It is shown that the factors of working conditions, remuneration and employer’s liability stated in Article 10 are at the centre of the independence assessment and that they are to be evaluated from an overall perspective rather than in a cumulative manner. Notably the aspect of who is carrying the economic risk, originally derived by the Court from the remuneration condition, has frequently been relied on in case law and is therefore particularly elaborated on. It is moreover concluded that legal independence is not a requirement in order for a person to be deemed to carry out its activities independently. The lack of legal personality might, however, cause it to fall within the scope of Article 10 and thereby indirectly precluding independence. Similarly, the factor of whether there is subordination present in the relationship between the person at issue and its principal entity is to some extent taken into account through the Article 10 criteria, but does not seem to have any bearing on its own. Lastly, it is argued that branches normally not are to be deemed independent as they typically fall within the scope of Article 10. Certain branches, such as branches belonging to a credit institution established in a third country, may nevertheless have endowment capital allocated to them due to legal requirements, possibly leading to a different conclusion. In regard to wholly owned subsidiaries, the scarcity of relevant case law limits the certainty with which conclusions might be drawn. The case law currently available does however indicate that the relationship between wholly owned subsidiaries and their parent companies might in certain circumstances fall within the scope of Article 10 and consequently be precluded from independence within the meaning of Article 9(1).