Acting as a VAT group as an option

As long as the inspector has not issued a VAT group decision, businesses can choose whether to act as a VAT group. Even those who meet every linkage condition are not obliged to do so.

The VAT group

A VAT group means that legally independent taxable persons established in the Netherlands, for example several private limited companies, are treated as a single taxable person where they are financially, organisationally and economically linked. As a result, supplies between the members no longer matter for VAT purposes and the right to deduct has to be determined at the level of the group.

The VAT group decision

The entities can apply to the inspector for a VAT group decision. Where they meet the conditions, the inspector issues one. The inspector can also impose a decision on his own initiative where in his view the conditions are met. The consequence of the decision is that the members become jointly and severally liable for the VAT debts of the group.

Without a decision you may act as a group

It follows from case law of the Dutch Supreme Court that the decision is not a condition for a VAT group to come into being, but merely confirmation that one exists. Where entities meet the conditions they may therefore act as a VAT group even without a decision. As long as no decision has been issued, they are not jointly and severally liable for the group's VAT debts. They can then enjoy the benefit of the group, such as no VAT on supplies between members, without the drawback of joint and several liability.

Without a decision it is not compulsory

In practice we regularly hear that businesses meeting the conditions are obliged to act as a VAT group. In our view that is wrong. Where several taxable persons established in the Netherlands meet the linkage conditions but no decision has yet been issued, they effectively have a choice. Under the case law of the Supreme Court they may act as a VAT group because they meet the conditions, but as long as no decision has been issued that same case law allows them to act as independent businesses.

In practice

Where a group wants to keep its entities administratively separate and does not want to be treated as a single taxable person, it can do so for as long as the inspector has not issued a decision. Where a holding company has several operating companies, one of which carries out exempt activities with no right to deduct, not applying the VAT group can avoid the need for administratively awkward pro rata calculations.

Conversely, it can be advantageous to act as a VAT group, for example where no VAT is due on recharged costs and the entities receiving the recharge cannot deduct in full.

Acting as a VAT group without a decision is not always wise. Where associated businesses would like to act as a group but there is doubt whether the conditions are met, it is better to request a decision. That gives certainty in advance. Always consult a VAT specialist when weighing this up.