Cavert Case: VAT Groups and EU VAT Exemptions

On 28 March 2025, the Dutch Supreme Court referred a set of preliminary questions to the Court of Justice of the European Union that may significantly reshape the interaction between VAT groups and VAT exemptions.

At the heart of the case lies a deceptively simple but structurally important issue: when a VAT group qualifies as a single taxable person under Article 11 of the VAT Directive, how should exemptions that depend on the status of the supplier be applied?

The case, now pending before the EU courts under the name Cavert, raises the possibility that the current understanding of VAT grouping – long used as a tool for neutrality and simplification – may come into tension with the strict and often personal nature of exemptions under Article 132 of the VAT Directive.

Facts and circumstances

The case revolves around a Dutch VAT group comprising several legally distinct entities active in the care sector for individuals with intellectual disabilities. Collectively, these entities deliver a broad array of services, ranging from medical treatment and residential care to various forms of support and monitoring.

A central element in the factual matrix is that only one entity within the VAT group – a foundation – has obtained the formal recognition required to qualify as both a medical institution and an institution of a social nature. This status is crucial for accessing the VAT exemptions provided for in Article 11(1)(c) and (f) of the Dutch VAT Act, which transpose Article 132(1)(b) and (g) of the VAT Directive. The remaining entities within the group do not hold such recognition.

One of those entities, a company, is responsible for providing 24-hour remote monitoring services. These activities include ongoing supervision, alarm response, and the coordination of follow-up care, typically facilitated by technological systems. The company supplies these services both within the VAT group and externally, for consideration, to third-party care providers offering intramural and extramural care. It is common ground that this company, when considered independently, does not meet the statutory criteria required to benefit from the exemptions.

Positions of the parties

In light of these facts, the VAT group initially treated the services supplied to third parties as taxable and declared VAT accordingly. It later revised its position, arguing that these services should fall within the scope of the exemptions. The taxpayer’s reasoning is based on the premise that a VAT group must be regarded as a single taxable person under Article 11 of the VAT Directive.

From that perspective, the conditions for exemption should be assessed at the level of the group as a whole. Since one member of the group satisfies all the relevant recognition requirements, the VAT group should, in its view, be entitled to apply the exemption.

The tax authorities dispute this interpretation. They maintain that the exemptions in question are intrinsically linked to the nature and status of the entity performing the services. Consequently, the relevant conditions must be fulfilled by the entity that actually carries out the supply. As the company providing the monitoring services is not a recognized institution, the exemptions cannot be applied, regardless of the existence of a VAT group.

The dispute

The dispute ultimately centres on the interplay between the VAT grouping regime and the exemption provisions. More specifically, it raises the question whether subject-dependent requirements for VAT exemptions must be examined at the level of the individual entity performing the supply, or whether those requirements can be satisfied at the level of the VAT group as a single taxable person.

This issue lies at the heart of the legal framework governing VAT groups and exemptions under EU law and underpins the preliminary questions referred to the Court of Justice.

Legal framework

The legal framework reflects the interaction between two core elements of EU VAT law. On the one hand, Article 11 of the VAT Directive allows Member States to treat closely connected entities as a single taxable person. This mechanism aims to simplify compliance and ensure neutrality by disregarding transactions within the group.

On the other hand, Article 132(1)(b) and (g) of the VAT Directive provides exemptions for medical and social services, but only where these services are supplied by entities that meet specific conditions, including formal recognition by the Member State. Article 133 allows Member States to impose additional requirements, such as the absence of a profit motive.

Dutch law mirrors this structure. The VAT group regime is implemented in Article 7(4) of the Dutch VAT Act, while the exemptions for medical and social services are laid down in Article 11(1)(c) and (f), further elaborated in secondary legislation.

The tension arises because VAT grouping is based on an objective concept – the existence of a single taxable person – whereas the exemptions rely on subjective characteristics of the supplier.

The Court of Appeal’s approach and the Supreme Court’s analysis

The Court of Appeal approached the case from the premise that a VAT group must be regarded as a single taxable person. From that perspective, it considered that the VAT group, viewed as a whole, could qualify as a recognized institution providing care services. Building on that assumption, the Court concluded that the 24-hour monitoring services were closely connected to exempt care activities and therefore fell within the scope of the exemption.

The Supreme Court took a step back and identified a more fundamental issue underlying this reasoning. It noted that EU law does not provide a clear answer as to how exemptions that depend on the status of the supplier should be applied in the context of a VAT group.

In that regard, the Court pointed to two competing lines of reasoning. On the one hand, the case law of the CJEU consistently treats a VAT group as a single taxable person, which would suggest that supplies carried out by individual members are to be attributed to the group as such. Seen in that light, it cannot be excluded that the group may rely on the recognition held by one of its members.

On the other hand, VAT exemptions must be interpreted strictly. In addition, Article 132 of the VAT Directive refers explicitly to “institutions”, which may indicate that the relevant conditions are

intended to apply to the entity that actually performs the services. Such an approach would be in line with the rationale underlying these exemptions, namely that they are reserved for entities that meet certain qualitative and regulatory requirements in the public interest.

The Supreme Court considered both interpretations to be tenable. As the issue could not be regarded as acte clair, it decided to refer the matter to the Court of Justice.

The questions referred reflect this underlying tension. In essence, the Court asks whether the exemptions apply only where the services are supplied by a member of the VAT group that individually satisfies all the relevant conditions, or whether it is sufficient that one member of the group meets those conditions for the exemption to apply to the group’s supplies as a whole.

Implications for practice

The outcome of this case has the potential to fundamentally alter the way VAT groups are used in practice. If the CJEU were to require that the entity performing the supply must itself meet all the exemption conditions, this would significantly restrict the scope of exemptions within VAT groups. Structures in which exempt and taxable activities are separated across entities could lose their effectiveness. In sectors such as healthcare, where operational functions are often split between different legal entities, this could lead to increased VAT costs and require structural changes.

Conversely, if the CJEU were to accept that it is sufficient for one member of the group to meet the conditions, this would broaden the reach of exemptions. VAT groups could then effectively “share” recognition across entities, allowing services provided by non-recognized members to fall within the exemption. While this would enhance neutrality within the group, it would also raise questions about the limits of exemptions and their strict interpretation.

The implications extend beyond the healthcare sector. Many exemptions in EU VAT law are subject-dependent, including those in financial services and insurance intermediation. A ruling in favour of a group-level approach could therefore have ripple effects across multiple industries.

At a more fundamental level, the case challenges the balance between two core principles of VAT law: the unity of the taxable person within a VAT group and the strict, condition-based nature of exemptions.

Conclusion

The Cavert case places a spotlight on a structural ambiguity in EU VAT law that has long existed but rarely been tested so directly. The question is not merely technical. It goes to the heart of how VAT groups function within the system. Are they to be treated as fully unified taxable persons in all respects, including access to exemptions? Or do the individual characteristics of their members remain relevant where the law attaches importance to the identity of the supplier?

The CJEU’s answer will determine whether VAT grouping continues to operate as a neutral consolidation mechanism or becomes subject to important limitations where exemptions are concerned. Either way, the decision is likely to have far-reaching consequences for VAT structuring and compliance across the European Union.

Source: Case T-444/25