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UK Reviewing VAT Group Rules

by Jason Gorringe,, London

14 September 2020

The UK Government has recently issued a call for evidence from UK VAT groups on future policy reform.

Multinationals typically form VAT groups to simplify administration of VAT within a group and to benefit from transactions between individual members being outside the scope of VAT. Another benefit is that forming a VAT group speeds VAT recovery, as input tax credits can immediately be set off against the output tax liability of another group member, rather than having to apply and wait for a VAT refund.

VAT groups file a single VAT return through the group's representative member, which is also responsible for making VAT payments and receiving refunds.

The purpose of the call for evidence - titled "VAT Grouping - Establishment, Eligibility, and Registration" – is to gather the views of businesses that utilize VAT grouping provisions, and other interested parties, on how these affect them and the wider business environment.

The Government said the exercise is intended to gather information and views on the current UK provisions, and views on provisions that have been adopted by other countries. It is intended that responses received will feed into future policy direction.

This call for evidence will examine three distinct areas of VAT grouping:

  • The establishment provisions;
  • A proposal for compulsory VAT grouping; and
  • Grouping eligibility criteria for businesses currently not in legislation, including limited partnerships.

From November 1, 2019, the eligibility criteria to join a VAT group was extended to include individuals, partnerships and Scottish partnerships, provided they control all other members of the VAT group. Although grouping eligibility criteria is examined in the call for evidence, the UK Government said evidence is only being sought on the eligibility of particular bodies rather than eligibility in general.

The document references the impact of two rulings on UK groups: the European Court of Justice's ruling in Skandia America Corp. (USA), Filial Sverige v. Sweden (case C-7/13), released on September 17, 2014, and the European Court of Justice's ruling in Larentia + Minerva mbH & Co. KG v. Finanzamt Nordenham (C-108/14), released on July 16, 2015.

Following on from an earlier consultation immediately after the Skandia ruling, the UK Government is again seeking views on how the Skandia ruling has impacted UK VAT groups. In particular, the consultation considers the UK's application of "whole establishment" provisions, under which all "fixed establishments" (or "branches") of the eligible person, whether in the UK or abroad, are considered to be part of a single eligible person.

This contrasts with other countries' "establishment only" provisions, which the UK does not utilize. These provide that where an entity has fixed establishments in multiple jurisdictions, it is only the establishment in the country in which the VAT group is based that can be part of that VAT group.

Respondents have been asked to comment on the impact of the potential adoption of "establishment only" provisions and the benefits of the UK's current "whole establishment" provisions.

TAGS: individuals | environment | tax | business | value added tax (VAT) | interest | United Kingdom | tax credits | legislation | Europe

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