VAT grouping in The Netherlands
VAT grouping, when Dutch companies that are linked financially, organizationally and economically form a VAT group for VAT purposes in the Netherlands. A VAT group is regarded as single entrepreneur for VAT purposes and as such, no VAT needs to be calculated on intra-group transactions. Also, only one VAT return needs to be filed for the whole group. At the same time, all participants become responsible for the VAT liability of the group.
A Dutch VAT group can be formed by two or more VAT taxable persons, regardless of their legal form. I.e. a group can consist of Dutch private persons, such as the B.V. (a Dutch limited) or C.V. (a Dutch community company), a foundation or an association; as well as Dutch natural persons (such as sole proprietors). One prerequisite, however, is that at least one member of the group is a B.V., C.V., foundation or association, so a VAT group cannot solely be comprised out of natural persons.
The group can only be formed out of VAT taxable persons that are established in the Netherlands or that have fixed establishment there. There are two ways, however, in which foreign entrepreneurs do become part of a Dutch VAT group.
First, Dutch tax law regards participants of the VAT group to be part for all of their activities, which includes the activities of both the head office and the fixed establishment(s). As such, if a fixed establishment in the Netherlands of a foreign company is part of the group, the foreign head office automatically becomes part of the group as well. The same applies to a head office established in the Netherlands and its foreign permanent establishment(s), if the head office is part of a VAT group in the Netherlands.
Second, a Dutch subsidiary of a foreign parent company can form part of the group. This also applies if the control of this subsidiary runs through the parent company, which itself cannot form part of the fiscal unity.
Financial, organizational and economic links
VAT grouping are formed by companies that are linked financially, organizationally and economically. Companies are linked financially if more than 50% of its shares, including voting shares, are directly or indirectly controlled by the same member. An organizational link exists if all participants are under one single leadership. This condition is also met when the leadership of one company is (de facto) subordinate to the leadership of the another company.
An economic link, often hardest to prove, can exist in the following cases:
- The participants have the same economic objective. This can mean serving a common clientele or being involved in the same market segment.
- The activities of one of the participants are predominantly (>50%) exercised for the benefit of the other participant (e.g. an operational company conducting its sales via a sales company).
Based on case law of the Dutch Supreme Court, a third possibility to establish the existence of an economic link is by proving that the companies have a ‘non-negligible economic relationship’ with each other when the financial and organizational interdependence criteria are sufficiently satisfied.
Forming a VAT group
A VAT group is formed when the material conditions are met. In contrast to the fiscal unity for Income Tax, a VAT group can thus be formed without approval of – or even informing – the Dutch Tax Authorities. A VAT group can be automatically assumed and acted upon by its members, provided that it can be shown that the conditions have been met from the moment the group has been assumed.
It is possible, however, to request the opinion of the Dutch Tax Authorities for clarity. The Tax Authorities may also take initiative themselves to issue a formal decision on whether the group exists after an audit.
Consequences of VAT grouping
There are three main consequences of forming a VAT group.
- First, the group receives a new VAT identification number, with which it can file a single VAT return for the whole group. It is possible, however, for its members to still file a VAT return separately for each company. Somewhat confusing can be the usage of the VAT groups’ VAT identification number. In domestic supplies, participants of the group should put the group VAT identification number on the invoice. However, for intra-Community transactions, the participants should still use their individual VAT identification number on the invoice. However, when doing an ICP return to declare intra-Community supplies, it is the group VAT number that is to be used.
- Secondly, all supplies of goods and services within the group are disregarded from a VAT perspective, thus no VAT should be calculated on these transactions. This is especially relevant for companies that do not enjoy a (full) right to deduct VAT. Without a VAT grouping, the VAT on intra-group transactions would not be (fully) deductible, thereby making intra-group dealings a costly affair.
- Thirdly, all participating companies of the VAT group become jointly liable for the VAT owed by the group.
Special rules apply to holding companies that want to participate in a Dutch VAT group. Determining the VAT status of holdings is complicated and subject to a substantial body of case law of the European Court of Justice. On the one hand, when a holding is involved in no other activities than the mere holding of its shares, it is certainly not seen as a VAT taxable person and hence cannot join a Dutch VAT group. On the other hand, when a holding is involved in the management of its subsidiaries and receives in return a remuneration subject to VAT, it might be seen as a taxable person and – if seen as such – can join a Dutch VAT group.
In reality, it is often unclear whether the holding company is involved in its subsidiaries to such an extent that it can be seen as a taxable person. For this situation, Dutch VAT group rules offer some lenience. When a holding company cannot be seen as a VAT taxable person, but still is heavily involved in the management of its subsidiaries (determining to a large extent the strategy, policy and decision making), the holding can also join the group, even when the company does not individually satisfy the conditions to be a taxable person.
Want to know and learn more about VAT grouping in the Netherlands? There is always a possibility to contact us and we are pleased to help you and your company.
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