VAT grouping has a number of advantages: it reduces the costs of administration, just one VAT return has to be filed for the whole group, members of a group do not charge VAT for goods and services supplied to each other and VAT to be paid and to be received can be set-off between the members of the group.
After the Court of Justice of the European Union has ruled that the exemption for an independent group of persons is only to be used for activities in the public interest, and not for financial and insurance institutions, effective as from 1 August 2018 Luxembourg has enacted a law to enable VAT grouping.
The legal basis for this new law is Article 11 of Council Directive 2006/112/EC on the common system of value added tax (VAT Directive), which provides that:
“(….) 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 organizational links.”
As Article 11 of the VAT Directive sets out, there must be a financial link, an economic link and an organizational link between the persons who form a single taxable person. This is further worked out in the Luxembourg law. A financial link exists when there is a holding of more than 50% of the voting rights in another person or the right to appoint or dismiss more than 50% of the members of the board of another person, while being a shareholder of such other person, or if there is a majority of the voting rights pursuant to an agreement between the shareholders. An economic link exists when the activities of the members of the group have the same activities, activities which complement each other or if the activities are performed for the other members of the group. An organizational link means that the members of the group have the same management, align with one another or if the members of the group under the (direct or indirect) control of one person.
The Netherlands has made use of the possibility of Article 11 of the VAT Directive and VAT grouping is provided for in Section 7, paragraph 4, of the Dutch Act on VAT. Together with Luxembourg seventeen EU members states now have legislation enabling VAT grouping.