The European Court of Justice (ECJ) has issued a decision in respect of a case brought by the European Commission concerning the provision for VAT groups in the UK. The UK argued in support of its position that non-taxable persons could be included in a VAT group and was supported in this view by the Czech Republic, Ireland, Denmark and Finland.
A group of companies may under UK VAT law elect to be treated as a single person for VAT purposes. The UK argues that as the European Commission accepts that VAT exempt or partially exempt traders may be included in a Vat group with fully taxable traders, it should also accept that non-taxable persons may be part of a VAT group. This does not necessarily mean that all the members of the group are engaged in economic activities that are within the scope of the VAT Directive.
The UK considers that any concern by the European Commission that a VAT group could be formed solely of non-taxable persons is not well founded. The formation of such a VAT group would not have any meaningful purpose.
Permitting non-taxable persons to join a VAT group can simplify administration and can help to combat VAT abuse. These companies may not currently make any taxable supplies but have the potential to engage in economic activities and may also be engaged in supporting the economic activities of other members of the group.
The UK also argued that it would be contrary to the principles of fiscal neutrality and equality of treatment if some groups are permitted to form VAT groups while others are unable to include all companies in the VAT group simply because their corporate organizational structure is different.
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Transfer Pricing Brief: April 2013
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