The UK, together with the Netherlands, Ireland, Spain, Finland, Sweden, the Czech Republic and Denmark, has been formally requested by the European Commission (EC) to amend their legislation so that non-taxable persons are excluded from VAT groups.
In the UK, HM Revenue & Customs (HMRC) enables pure holding companies, whose activities are limited to the acquisition and holding of shares, to be part of a VAT group. Under EC Directive 2006/112/EC art 9(1) only companies carrying on economic activities can be included in a VAT group. The acquisition and holding of shares is not considered an economic activity.
The EC has, therefore, requested that the UK and the other EU countries amend their legislation to exclude companies not engaged in economic activities (taxable persons) from inclusion in VAT groups.
HMRC’s position regarding including holding companies in VAT groups may therefore change in the future.
The EC has stated that companies may be part of group VAT registrations where they are taxable persons established in the territory of a country who, while legally independent, are closely bound to each other by financial, organisational and economic links.
The EC proposes that:
- Only taxable persons should be part of a VAT group,
- The taxable persons must be established with their seat of economic activity or fixed establishment in the territory of the member state where the VAT group is established,
- The financial link between group members should be defined by a reference to over 50% in voting rights guaranteeing that one company has the actual control of another,
- The economic link should be defined by the activities of the group members being the same, or the activities are complementary, or interdependent, or one member of the group performs activities which are wholly or substantially to the benefit of the other members, and
- There should be a shared or partially shared management structure.
The reaction from HMRC is awaited.
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