The introduction of the Bill follows a recent decision of the EC Court of Justice which ended the use of the independent group of persons mechanism which was often used within Luxembourg, mostly in its financial, investment management and insurance sectors.
The Bill aims in restoring Luxembourg competitiveness in comparison to other EU countries that already have a VAT grouping regime. Such regimes are permitted on the basis of article 11 of the EU VAT Directive (Directive 2006/112/EC) which allows EU member states to
“regards 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 organizational links.”
VAT grouping results, inter alia, in the following advantages/consequences:
- Members of a VAT group are considered to form one taxable person for VAT purposes;
Consequently, any and all supplies of goods and services between members of a VAT group are treated as falling out of scope of the VAT, thereby offering the benefit that entities having no input VAT deduction right to avoid VAT in respect of services received by such entity from an entity with which it is sufficiently closely related (financially, economically and organizationally);
Recovery of input VAT is in principle determined at the level of the VAT group;
The VAT group will be attributed one single VAT number identifying the VAT group as a whole whilst members of the VAT group will be attributed a separate VAT number in order to be applied in respect of any dealings / transactions concluded with third parties;
The VAT group will file a joined VAT return, rather than each member filing individual VAT returns, such reducing the administrative burdens and will be represented to the VAT authorities by a single member thereof;
Despite being represented by a single member, each member of a VAT group shall be held jointly liable for the payment of the VAT amounts due (as well as any interest for late payments, filings etc.) by the group members collectively.
According to the Bill, the VAT group is subject to the fulfillment of the following conditions:
- Since the VAT group is not obligatory, members need to submit a request in order to form a VAT group;
- The VAT group needs to be maintained for a period of at least two years;
- The VAT regime is open for entities having an establishment in Luxembourg and thereby meeting certain additional (substantive and formal) requirements; and
- VAT grouping is only possible between entities that share – cumulatively – sufficiently close financial, economic and organizational links, as defined in the Bill. The existence of sufficiently close financial links needs to be certified by an auditor / chartered accountant.
With the Bill currently making its way through the parliamentary process before being formally adopted and enter into force per, expectedly, 31 July 2018, groups having established multiple entities in Luxembourg can already review their overall Luxembourg VAT position and determine whether a VAT grouping may be of interest to them.
Do not hesitate to contact your trusted advisor at Tiberghien Luxembourg or any of the authors of this publication should you wish to discuss these developments further or wish to assess your Luxembourg VAT position in light of the above.