VAT grouping

On Thursday, 15 March 2007, Royal Decree no. 55 on VAT grouping was published, with the consequence that, since 1 April 2007, VAT grouping has been possible in Belgium. This is one of a series of tax measures taken by the government to make Belgium more attractive for business.

Why could VAT grouping be of interest to your business? 

• No longer limitation on the right to deduct input VAT and no double application of the limitation on the right to deduct input VAT in certain circumstances (e.g. existence of a real estate company or a coordination centre within a VAT group, re-charging of car costs within a VAT group, etc.).
• Elimination of the risk of incorrect VAT treatment of intra-group transactions (e.g. chain supplies, application of reverse charge, treatment of operations, etc.).
• Positive cash-flow impact (especially in situations with one group company in a VAT-refund position and another group company in a VAT-liability position).
• Cost cuts due to optimising of business structure (through use of shared service centres or centres of excellence).

Our track record

Ine Lejeune (Global Indirect Tax Leader of PricewaterhouseCoopers) together with a team of experts (Serge, Bart and Inge) have proved their credentials in this respect. They provided the Belgian government with best practices from a European perspective, input and suggestions in the drafting phase, thus helping make the legislation as business-friendly as possible.

Please find enclosed an article our experts have written on the subject. ( BTW eenheid - VAT Grouping)

In addition, they have provided input to the tax authorities on the drafting of the administrative guidelines regarding VAT grouping. Please find enclosed the administrative guidelines regarding VAT grouping for your information.

Our assistance

For your information our assistance could include:

• acting as a VAT expert in setting-up VAT groups (e.g. review of financial, economic and organisation links, assistance in opt-out (if any) for specific group entities;
• making a cost/benefit analysis taking into account the impact on the right to deduct VAT and the cash-flow impact of VAT grouping;
• providing a detailed action plan to come to an efficient roll-out of VAT grouping;
• analysing the optimal VAT grouping structure;
• assessing various input VAT deduction methodologies across the VAT group in order to optimize the right to deduct VAT at the level of the VAT group; including feedback on how to prove the destination of bought-in services and goods (and impact on ERP system);
• providing feedback on the preparation of a VAT grouping file and application (e.g. completing application form 606A, providing draft proxies to appoint the representative member, preparing cover letters to the competent VAT office);
• contacting the central and/or local VAT office (if required);
• setting-up new VAT procedures, processes and controls to come to consolidated VAT reporting;
• reviewing requirements to document internal transactions within the VAT group;
• reviewing any VAT revisions/self-supplies to be performed at the level of the individual members and the VAT group;
• reviewing first VAT return and listings (if any) to be filed at the level of the VAT group.

Please find hereinafter some general information on VAT grouping in Belgium:

Conditions to apply VAT grouping

Under the proposed rules, taxable persons established in Belgium that are legally independent but closely bound to one another by financial, economic and organisational links can opt to form a group for VAT purposes.

For this, five cumulative conditions have to be met:

• taxable persons: the option is open only to persons that perform (VAT) taxable transactions (subject to VAT or exempt). For example, “passive” holding companies (whose activity exclusively comprises holding shares and that are not taxable persons for VAT purposes) cannot join a VAT group; and
• establishment in Belgium: only Belgian taxable persons or foreign taxable persons with a fixed establishment in Belgium for VAT purposes can be members of a VAT group. Non-established taxable persons that are merely registered for VAT in Belgium cannot form part of a VAT group; and
• financial link: there is a direct or indirect controlling relationship in law or in fact; and
• economic link: the principal business activities carried on by the members have to be similar or complementary, there must be a mutual influence between the activities or they must form part of pursuit of the same economic purpose; and
• organisational link: the members have to be controlled by one and the same person or come under the same leadership or their activities have to be organised with mutual consent.

Parties forming a VAT group

VAT-group membership must be maintained until at least 31 December of the third year after joining, unless the relevant entity ceases to meet one or more of the above conditions.

Consequences

A VAT group is seen as a single taxable person for supplies to and by it. This means that, for VAT purposes:

• supplies of goods or services between members of the VAT group no longer fall within the scope of VAT;
• supplies of goods or services made by a third party to an individual member of the VAT group are deemed to be made to the group;
• imports and intra-Community acquisitions by an individual member of the VAT group are treated as made by the VAT group;
• supplies of goods and services by an individual member of the VAT group to a third party (that is not a member of the VAT group) are treated as transactions by the VAT group.

Supplies to & by a VAT group

Impact on the right to deduct input tax

The normal rules on thekvin right to deduct input VAT apply to VAT groups.
Consequently, whether input VAT on supplies of goods or services made by
a third party to a VAT group can be deducted depends on what use is made of the goods or services by the VAT group:

• if the goods or services are used by the VAT group for transactions giving it a right to deduct input tax, the VAT will be deductible;
• if the goods or services are used by the VAT group for transactions on which there is no right to deduct input tax, the VAT will not be deductible;
• if the goods or services are used by the VAT group for transactions falling under both the above categories, a pro rata split (special or general depending on the method for exercising the right of deduction) has to be applied to determine the percentage VAT deduction for those goods or services.