21 Value added taxation
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11734/09
COM(09) 325
| Commission Communication on the VAT group option provided for in Article 11 of Council Directive 2006/112/EC on the common system of value added tax
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| Legal base | — |
| Department | HM Treasury |
| Basis of consideration | Minister's letter of 4 December 2009
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| Previous Committee Report | HC 19-xxvi (2008-09), chapter 6 (10 September 2009)
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
21.1 Under the VAT Directive, Council Directive 2006/112/EC, a
Member State may regard two or more persons established in that
Member State who, while legally independent, are closely bound
to one another by financial, economic and organizational links,
as a single taxable person for VAT purposes, that is, a "VAT
group". The main advantages are that a VAT group only has
to submit a single VAT return and transactions between members
in a VAT group are disregarded for VAT purposes. The provision
in the Directive about the option for Member States to introduce
VAT grouping schemes into their national legislation is brief,
which leaves it up to Member States to set the detailed rules
on the implementation of the VAT grouping option.
21.2 The Commission considers that Member States
differ widely in the way they implement this provision and that
a more uniform approach is necessary. So in this Communication,
published in July 2009, the Commission aimed to explain its view
on how the provision should be translated into practical arrangements
whilst respecting the basic principles of the VAT system. The
Communication set out a number of guidelines for Member States
to consider when introducing VAT grouping schemes or when amending
such schemes. The Commission said that, in the light of reactions
to the Communication, it would reflect on whether and when further
action would be appropriate. Such action could consist of proposing
amendments to the VAT Directive provisions on VAT groups. But
it could also be by "contributing to a more uniform and fiscally
neutral application of the current rules by other means"
— which was taken to mean by taking infraction proceedings
against Member States where the Commission disagreed with their
implementation of Community law.
21.3 When we considered this document, in September
2009, we heard that the Government's treatment of VAT grouping
was consistent with most of the points identified by the Commission's
Communication. There were, however, two areas that required further
clarification:
- the Commission's belief that
only "taxable persons", broadly speaking bodies actively
engaged in economic activities, were entitled to inclusion in
a VAT group, implied that the UK's rules were too wide, in that
they allowed the inclusion of bodies that did not fall within
this definition; and
- in the context of the treatment of cross border
transactions between a head office and a branch, the Commission's
view that, when a taxable person joins a VAT group, any services
it subsequently supplies to its fixed establishment abroad should
be considered as transactions between two separate taxable persons
and that VAT would be due upon cross border transactions between
them, which was contrary to the UK practice.
21.4 In noting these two areas of concern we said
we were unclear as to the Government's intentions in this regard.
We assumed that it did not intend to alter the present UK rules
on VAT groups. Rather it would await possible infraction proceedings
or Commission proposals for amending legislation. We asked for
confirmation that this was the case — meanwhile the document
remained under scrutiny.[68]
Conclusion
21.5 The Financial Secretary to the Treasury (Mr
Stephen Timms) writes now to tell us that our assumptions were
correct — the Government does not intend to alter the present
UK rules on VAT groups as a result of the Commission's Communication
and it will only consider changes in relation to any infraction
proceedings or Commission proposals for amending legislation.
The Minister adds that the Commission has in fact commenced infraction
proceedings in relation to the issue of including only "taxable
persons" in a VAT group and the Government is considering
how to respond to this challenge.
Conclusion
21.6 We are grateful to the Minister for this
clarification of the Government's intentions in this area. We
have no further questions and clear the document.
68 See headnote. Back
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