Tax alert: Even passive holdings and private persons can be members of a VAT Group – CJEU disavows Commission

Must Belgium also review its position?

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The CJUE has recently been asked to determine whether non taxable persons could also be members of a VAT group.

1) Notions on the VAT group within the EU
Article 11 of the VAT Directive provides that a VAT Group is possible and reads as follows:
After consulting the advisory committee on value added tax (hereafter, the ‘VAT Committee’), each Member State may regard as a single taxable person any persons established in the territory of that Member State who, while legally independent, are closely bound to one another by financial, economic and organisational links.

The VAT group is thus a legal fiction mainly meant to:

  • achieve the VAT consolidation for its members;
  • exclude the intra-group transactions from the VAT scope.

2) A variety of implementations for the VAT grouping regime
Since said Article 11 only states a general and optional principle, the VAT group is a purely domestic vehicle that applies in some Member States, but not all. When it applies, this VAT group is implemented in various ways (optional or not, various deduction methods,…).

One of the discrepancies in the various implementations within the EU concerns the status of the VAT group’s members. Some Member States only allow taxable persons to become members whereas others, such as Ireland, also allow (or impose) that non taxable persons such as e.g. passive holdings, public bodies or private persons be members of their respective VAT groups.

3) The view of the EU Commission…
The Commission had expressed unequivocal support for the first group in a communication to the Council and the European Parliament dated 2 July 2009. Subsequently, Commission had first sent a formal notice and then brought (a.o.) Ireland before the CJEU for failure to comply with Article 11 of the VAT Directive.

4) … disavowed by the CJUE
However, in the judgment of 9 April 2013 (in the case C-85/11 Commission v Ireland), the CJEU decided that the wording of Article 11, and more specifically the expression “any persons” used therein, did not preclude non taxable persons from being included in a VAT Group.

5) Must Belgium consequently amend its regulation on the Belgian VAT group?
In Belgium, only taxable persons are entitled to become members of a VAT Group (Cf. Article 1 of VAT Royal Decree n°55). Whether this position can be upheld despite this judgment is doubtful, but not totally excluded.

On the one hand, the Commission had already expressed that, if the system applies, it should apply widely, i.e. to all sectors, in order to prevent distortions. This reasoning has recently been supported by Advocate General Niilo Jääskinen in case C-480/11 against Sweden for which the judgment should be issued on 25 April 2013. A similar reasoning applying mutatis mutandis for all persons (and not only sectors), including non taxable persons, would then impose that Belgium revise its regulation.

On the other hand, the system is optional and one could wonder whether the expression “any persons” may mean “some persons” chosen by the Member State concerned, which would allow Belgium not to include the non taxable persons in the persons entitled to joint its VAT groups...