Legal Entity as a “Close Relative”

If an entrepreneur issues invoices to a GmbH whose sole authorized managing director is his life partner, and the entrepreneur has also been granted an option to acquire shares in that GmbH, there exists a close relationship between the invoice issuer (entrepreneur) and the invoice recipient (GmbH).

Such a legal relationship is only recognized for tax purposes if it complies with the requirements of the jurisprudence on related parties. This includes a written agreement, a clearly defined service relationship, and conditions that are in line with market standards (“arm’s length principle”).

In the case at hand, the services invoiced were only partially paid, and the invoicing setup was designed in a way that allowed the GmbH (applying accrual-based VAT) to claim a high input VAT deduction, while the entrepreneur (applying cash-based VAT) owed no or only minimal VAT due to non-payment.

The Austrian Supreme Administrative Court (VwGH) ruled that, under these circumstances, the entrepreneur owes the full VAT amount pursuant to § 11 para. 12 of the Austrian VAT Act (UStG 1994) solely by virtue of having issued the invoice.

VwGH ruling of 11.12.2024, Ra 2024/13/0067