Ref. Ares(2020)5179696 - 02/10/2020
EUROPEAN COMMISSION
DIRECTORATE-GENERAL
TAXATION AND CUSTOMS UNION
Indirect taxation and tax administration
VAT and other turnover taxes
TAXUD/2161/07/ADD2 - EN
Brussels, 26 February 2008
VALUE ADDED TAX COMMITTEE
(ARTICLE 398 OF COUNCIL DIRECTIVE 2006/112/EC)
WORKING PAPER NO 556 – ADDENDUM 2
CONSULTATION
PROVIDED FOR UNDER DIRECTIVE 2006/112/EC
ORIGIN:
United Kingdom
REFERENCE:
Article 11
SUBJECT: VAT
grouping
Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11.
TAXUD/2161/07 ADD2 – Working paper No 556 – Addendum 2
VAT Committee - Consultation
1. ADDITIONAL INFORMATION PROVIDED BY THE UNITED KINGDOM
The United Kingdom has provided additional information and asked the Commission to
distribute it to the VAT Committee.
The UK's contribution is set out under point 3 of this document.
2. COMMISSION OPINION
1. How does the UK ensure that the principle of fiscal neutrality is respected when
operators use its VAT grouping scheme?
2. How does the UK ensure that the right to deduct can only be exercised in so far as
goods and services are used for the purposes of the taxed transactions of the VAT
grouping (Article 168 of Council Directive 2006/112/EC)?
3. INFORMATION PROVIDED BY THE UNITED KINGDOM
Reference:
VALUE ADDED TAX COMMITTEE
(Article 398 of Directive 2006/112/EC)
Working Paper No. 556 (TAXUD/2161/07)
Subject:
Draft VAT Grouping guidelines
Introduction
At the 82nd VAT Committee no fewer than six Member States requested to consult on the
introduction or amendment of VAT grouping provisions in accordance with Article 11 of
Directive 2006/112/EC. In response, the Commission prepared a set of draft guidelines to
enable greater uniformity in the operation of VAT grouping arrangements across the EU.
While the UK understands and appreciates why the Commission has followed this
approach, and while in principle we are not opposed to a common set of guidelines, we
have serious concerns about the timing of this initiative, the absence of any analysis of the
potential impact on EU businesses of the adoption of these guidelines, and the way the
exercise is being conducted.
Timing
In the UK, VAT groups are used by businesses in all sectors, and are of particular benefit
to businesses operating in the financial and insurance services sector to help reduce levels
of irrecoverable VAT. The Commission has only recently published its proposals for
simplifying the complex VAT rules in this sector, which includes the commitment to
reduce the amount of irrecoverable VAT borne by financial services businesses. In
addition, one aim of the Financial Services review is to reduce or remove any significant
additional administrative burdens on these businesses.
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In view of this work it seems premature to propose the adoption of VAT Grouping
guidelines, particularly those that will impact on cross-border scenarios, given that
Council has only just started to consider the Commission’s proposals for reforming
taxation of the financial services sector, and before any conclusions are reached or
decisions taken as to the best way forward.
Potential impact on EU businesses
The UK is also concerned that the potential, or actual, impact on EU businesses of the
introduction of the proposed guidelines has not yet been fully considered or evaluated. It
seems that some tax advisors are aware of the consultations and draft VAT Grouping
guidelines, and their assessment is that if the proposed guidelines are adopted it would:
“require a wholesale review of many existing Group structures”.
If this is the case, and it may well be, it is critical that Member States are given the
opportunity to properly consult their businesses and to carefully consider the full impact
of any changes before they are made.
VAT Committee discussions of the draft guidelines
Finally, we have concerns about the nature of this exercise. It was evident from the
discussion at the 82nd VAT Committee meeting that there is considerable ambiguity as to
how Article 11 should be interpreted, and that on one or two important details Member
States have widely diverging views. In addition, it is a complex area of VAT law and one
where, in our view, the implications of some important ECJ jurisprudence (eg
FCE Bank (C-210/04)) needs to be fully analysed and evaluated.
At the last meeting the UK set out to the Committee, as an example, the complexity of the
issues that arise from adopting the Guidelines in their current state without further
analysis and sector consultation. Focusing on Guideline 4, and the territorial scope of
VAT grouping, we noted the Commission’s view that requires transactions between a
VAT group and an overseas fixed establishment to be treated as a transaction between two
separate taxable persons, and taxed accordingly.
However, as the Commission noted in their analysis (albeit briefly), this view takes no
account of the ECJ jurisprudence in
FCE Bank (C-210/04), where the court held that a
provision of services is only taxable where there is a legal relationship with reciprocal
performance between the parties. In
FCE Bank no such relationship was said to exist
between two establishments of the same legal entity, resulting in no supply. The
Commission supported this approach.
Arguably, the reasoning applied in
FCE Bank is relevant whether or not one of the
establishments forms part of a VAT Group; there can be no supply if the two
establishments form part of the same legal entity. This reasoning applies notwithstanding
the general application of the territoriality scope of the VAT jurisdiction of Member
States.
The issue in
FCE Bank relates to the definition of supply; the court held that no supply
could exist even if the supply was cross border. Indeed, this approach was supported by
the Commission at the 80th VAT Committee. In the context of the Irish VAT grouping
scheme the Commission said:
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‘It is known that no state of legal independence exists between a taxable person
and his fixed establishment, and that consequently the fixed establishment cannot
be considered a distinct taxable person. Moreover, the effect of the VAT
grouping is that several taxable persons that are legally independent but closely
linked from a financial, economic and organisational point of view are
considered to be a taxable person. It may be considered therefore, that if the
fixed establishment forms a single taxable person with the taxable person of
which it forms part, the fact that the taxable person is part of a VAT grouping
necessarily means that his fixed establishment must also enter into that
grouping.’
This focus, on a single element of one guideline, indicates the complexity of the issues
involved. The VAT Committee is the proper forum for considering such matters, but the
outcome of these discussions may or may not be the production of a set of guidelines. We
could, for example, conclude that in order to effect necessary changes there is a need to
amend the VAT Directive itself. In addition, as mentioned above, we have not yet had a
proper opportunity to discuss any of the issues arising with the UK business community.
Conclusion
Given the above concerns, we are of the view that instead of rushing into the preparation
and adoption of a set of guidelines that may, in light of further thinking, need to be
quickly amended, Member States’ Article 11 consultations should be individually
considered on their merits and that further research and analysis be undertaken before any
draft guidelines are put to the VAT Committee for possible adoption.
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