VAT
Grouping is a facilitation measure contemplated under Article 11
of the Sixth EU Directive, by which two or more bodies corporate
(including companies and limited liability partnerships) which
are established in the territory of a MS and which are ‘legally
independent’ and ‘closely bound together by financial, economic
and organizational links’, may be regarded by the MS ‘as a
single taxable person’.
The main practical consequence of VAT grouping is that it
“shelters transactions between members of the group for VAT
purposes”[1],
so that between group members VAT does not become due. This is
because all supplies are treated as being made, to or by, the
representative member of the VAT group. Therefore a VAT group is
treated in the same way as a single company registered for VAT
on its own. This implies that the representative member accounts
for any tax due on supplies made by the group to third parties
outside the group. Subsequently there would be a single tax
return for the whole group. Simultaneously however, although the
representative member is nominally liable for transactions with
third parties, all group members are jointly and severally
liable for debts, including the tax due.
About half of the MS (16MS out of EU27) currently allow or are
contemplating the introduction of domestic VAT Grouping. It is
to be noted that Maltese law does not allow this as yet. The
different interpretation and divergent conditions for VAT
Grouping in the MS adopting this arrangement has led to a
recommendation in the EC Working Document SEC/2007/1554, calling
for a more uniform treatment of VAT Grouping.
On the 2nd of July 2009, the European Commission adopted a
Communication setting out its position on VAT Grouping schemes.
This Communication includes guidelines aiming at ensuring a
correct, coherent and uniform application of the VAT Grouping
option in the Sixth EU Directive. The reason for this was
clearly pointed out by Lászl ó Kovács, the Commissioner
responsible for Taxation and Customs Union, who held that “The
practice has shown that the VAT grouping scheme although being a
simplification measure for operators, could lead to tax evasion.
For that reason the Commission proposes clear guidelines on how
to apply in practice this scheme".
Therefore
the Communication establishes guidelines as to how Article 11 is
to be practically applied, whilst “respecting the basic
principles of the Community VAT system and ensuring that the
effects of using the option scheme remain restricted to the
Member State applying it”. The Communication includes the
following guidelines:
-
Only
taxable persons may join a particular VAT Group, and such
person will only be able to be a member of one VAT group at
any one time
-
The
VAT Group is itself a taxable person. This implies the
uniform application of
-
The
VAT Group would have one VAT registration number by which it
is identifiable
-
Members of the particular VAT Group can only be companies or
fixed establishments which are physically present in the MS
in which the VAT Group is registered. Members can have
variable economic activities
-
The
financial, economic and organizational links mentioned in
Article 11 must exist simultaneously
-
The
VAT group’s right to deduct input VAT is to be determined on
the basis of the transactions of the group with third
parties
It is
highlighted in the Communication that MS opting for VAT Grouping
arrangements, take all the necessary measures to prevent tax
evasion or avoidance, including any abusive measures
particularly through the use of national VAT Grouping schemes.
It is held that VAT Grouping aims at making the particular
persons in the sector more competitive, hence no unjustified
advantage should arise from the implementation of these schemes.
[1]
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52007SC1554:EN:HTML
