Tax Connect Flash | VAT group introduced by a bill of law in Luxembourg

April 2018

Due to the recent case-law of the European Court of Justice on the independent group of person, the bill of law n°7278 has been introduced in Luxembourg, in order to implement the VAT group with effect from 31 July 2018. 

Article 11 §1 of the VAT Directive 2006/112/EC allows Member States to implement the VAT group into their domestic law, which (i) has already been done by 16 Member States and (ii) will be done soon by Luxembourg. Note that in France, the French tax authorities are working together with business on a potential implementation of this regime. 

This e-alert intends to give a snapshot of the key features of the bill of law introduced in Luxembourg. 

 Who may benefit from this VAT group? 

  • Any person may be part of a VAT group, non-VAT taxable persons included. 
  • The persons must be established within the territory of Luxembourg, fixed establishment physically present in Luxembourg included. 
  • The persons must be bound simultaneously to each other by financial, economic and organizational links. 

► Is the VAT group mandatory? 

Accession to the VAT group is optional. 

However, once it has been decided to opt for it, all the persons which fulfil the legal conditions must opt for such membership. A person may however renounce to the membership except (i) if the renouncement provides a VAT advantage to the group or to the person that renounces or (ii) if the person that renounces is interposed in the economic circuit between members of the VAT group. 

Furthermore, each member must remain within the VAT group for at least 2 years. 

 What are the effects of the VAT group?

Intermediate supplies between the members of the VAT group are treated as “internal supplies” and thus ignored for VAT purposes. 

One of the member of the VAT group shall be appointed as its representative, the latter being then entitled to exercise any rights in relation to, and must fulfil the obligations laid down by, the VAT law. 

The VAT group shall become its own individual identification number (in the course of its interaction with VAT authorities) and any member related to such VAT group shall be vested with an auxiliary identification number (when these members interact with their own suppliers and recipients). A single VAT return encompassing all members of the VAT group shall be submitted.  

Each member of the VAT group is jointly and severally liable for payment of the VAT debts of the entire VAT group to which it belongs. 

It is important to understand the key issues which are related with a decision to opt for a VAT group. The VAT group regime indeed presents certain advantages. However, the joint liability, the accession and the obligation to remain for at least 2 years, or the administrative efforts to be afforded by the VAT group members in relation with the submission of their figures to their representative member earlier than if they would have sent them directly to the VAT authorities, should be carefully analysed when considering this tax structuration.

Authors

Picture of William Jean-Baptiste
William Jean-Baptiste
Partner
Picture of Alexandra Léonard
Alexandra Léonard
Associate