Establishment of new company with the aim to maintain the benefit of the status of small enterprise constitutes an abusive practice

According to the CJEU:

• special scheme for small enterprises makes it possible, by the administrative simplifications which it entails, to support the creation, activities and competitiveness of small enterprises and to retain a reasonable relationship between the administrative charges connected with fiscal supervision and the small amounts of tax to be reckoned with – this scheme is thus aimed at sparing small enterprises and the Tax Authorities from such a burden;
• if a company is established in order to maintain the benefit of the VAT exemption scheme, in respect of an activity which appears to have been carried out previously by another company, at a time when that other company has ceased to satisfy the conditions necessary to benefit from that scheme, the grant of such a tax advantage would not meet these objectives;
• in case of an abusive practice intended to benefit from the VAT exemption scheme for small enterprises, it is for the national authorities and courts to refuse the benefit thereof, even in the absence of specific national provisions to that effect;
• application in the sphere of VAT of the principle of the prohibition of abusive practices entails, first, determining the situation that would have prevailed in the absence of the transactions constituting such a practice and then assessing that ‘redefined’ situation.

Where it is proven that the establishment of a company constitutes an abusive practice intended to maintain the benefit of the VAT exemption scheme for small enterprises, in respect of an activity previously carried out, under that scheme, by another company, the company accordingly established cannot apply that scheme, even in the absence of specific provisions laying down the prohibition of such abusive practices in the national legislation.

More information can be found on the following link: Judgement of the CJEU C‑171/23 UP CAFFE