UK Planning Law Change For VAT Groups 

UK-tax

The UK Government has announced a consultation on changes to the nation’s VAT grouping provisions, following the European Court of Justice’s rulings in the cases Larentia + Minerva and Marenave (C-108/14 and C-109/14) and Skandia (C-713).

The consultation process is intended to help HM Revenue and Customs gather views on policy design, the impact of any change, and alternative approaches to develop new legislation. The changes will affect UK VAT-registered businesses who are members of a VAT group and other businesses who are interested in applying for VAT grouping.

Article 11 of the Principal VAT Directive allows member states to treat two or more businesses established in the territory of that member state as a single taxable person (often called a VAT group) if the businesses have close economic, financial, and organizational links.

UK VAT grouping legislation (VAT Act 1994 s43-43D) currently allows two or more companies or limited liability partnerships – known as ‘bodies corporate’ – to register as a VAT group if:

  • Each body is established in the UK;
  • They are under common control, for example a parent company and its subsidiaries.

Further details can be found in VAT Notice 700/2: group and divisional registration.

The Larentia + Minerva and Marenave judgment was released in July 2015. The Court of Justice of the European Union found that member states may only restrict VAT grouping to legal persons where those restrictions are appropriate and necessary to prevent, abuse, avoidance, or evasion.

As a result of this judgment the Government expects to make changes to UK law and VAT grouping provisions.

According to the Government, these changes are likely to include:

  • Extending VAT grouping to non-corporate bodies; and
  • Identifying new rules to determine “close economic, financial, and organizational” links for corporate and non-corporate bodies, replacing the current “control” test based on a company law definition of a subsidiary.

The consultation also offers an opportunity for businesses and their representatives to comment on other grouping related matters, particularly those where the provisions differ across EU member states, as identified in the Skandia case. This information will help inform future discussions with the European Commission and other member states, the Government said.

The implication of the Skandia judgment is that an overseas establishment of a UK-established entity is part of a separate taxable person, providing the overseas establishment is VAT-grouped in a member state that operates similar “establishment only” grouping provisions to Sweden. This will be the case whether or not the entity in the UK is part of a UK VAT group. The UK issued changes to VAT obligations in respect of this case, which became effective from January 1, 2016.

Source: TaxNews – UK Planning Law Change For VAT Groups

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