Communication from the Commission to the Council and the European Parliament on the VAT group option provided for in Article 11 of Council Directive 2006/112/EC on the common system of value added tax
Date: 2009-07-02
Institutions: European Commission
Subjects: EU Member State, VAT, derogation from EU law, harmonisation of standards, tax exemption, tax system

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 2.7.2009 
COM(2009) 325 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

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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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

on the VAT group option provided for in Article 11 of Council Directive 2006/112/EC on 
the common system of value added tax 

1. 

INTRODUCTION 

Article 11 of Council Directive 2006/112/EC of 28 November 2006 on the common 
system  of  value  added  tax1  (hereinafter  'the  VAT  Directive')  provides  the  Member 
States  with  an  option  to  introduce  VAT  grouping  schemes  into  their  national 
legislation.  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  organisational  links,  as  a  single  taxable  person  for  VAT 
purposes.  Member  States  who  wish  to  exercise  this  option  must  submit  prior 
consultation  to  the  advisory  committee  on  value  added  tax  (hereinafter  'the  VAT 
Committee')  and  may  adopt  any  measures  needed  to  prevent  tax  evasion  or 
avoidance arising from the use of this option. 

Where the VAT grouping option provided for in Article 11 is taken up by a Member 
State,  this  is  to  be  considered  as  a  particular  national  deviation  from  the  normal 
Community VAT rules. 

Although the VAT grouping option has been available for Member States since the 
1970s, the Commission has nevertheless noted an increased interest on the part of the 
Member States in using this option. To the Commission's knowledge, there are now 
15  Member  States2,  which  have  introduced  VAT  grouping  schemes  into  their 
national legislation. 

The wording of Article 11 is brief, which leaves it up to Member States to lay down 
the detailed rules on the implementation of the VAT grouping option. Moreover, the 
VAT Directive contains no other provisions that relate specifically to VAT groups. 
From  the  Member  States'  consultations  with  the  VAT  Committee,  it  has  become 
evident  that  there  are  wide  divergences  between  the  VAT  grouping  schemes 
implemented by Member States. 

Given the advantages a VAT grouping scheme can offer to certain taxable persons, 
the  scheme  may,  depending  on  its  features,  run  counter  to  the  principle  of  fiscal 
neutrality and may be a source of fiscal competition between Member States. In view 
of this, the current divergences between the national VAT grouping schemes involve 
a  potential  impact  on  the  internal  market  and  on  the  basic  principles  of  the 

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Council Directive 2006/112/EC of 28 November 2006, on the common system of value added tax (OJ L 
347, 11.12.2006, p. 1). Directive last amended by Directive 2008/8/EC (OJ L 44, 20.2.2008, p. 11). 
Austria, Belgium, the Czech Republic, Cyprus, Denmark, Estonia, Finland, Germany, Hungary, Ireland, 
the  Netherlands,  Romania,  Spain,  Sweden  and  the  United  Kingdom.  Slovakia  will  introduce  VAT 
grouping scheme in July 2009. 

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Community VAT system. This is confirmed by the fact that many group schemes, by 
their design, do not ensure that the effects are limited to the national territory. 

It is therefore essential to make sure that this provision is applied more uniformly. 

Against  this  background,  the  aim  of  this  Communication  is  to  explain  the 
Commission's  view  on  how  the  provisions  of  Article 11  should  be  translated  into 
practical arrangements whilst respecting the basic principles of the Community VAT 
system. 

In  the  light  of  reactions  to  this  Communication,  the  Commission  will  reflect  on 
whether  and  when  further  action  will  be  appropriate.  Such  action  could  consist  in 
proposing  concrete  amendments  to  Article  11  but  also  in  contributing  to  a  more 
uniform and fiscally neutral application of the current rules by other means. 

2. 

ORIGINAL OBJECTIVE OF THE VAT GROUP PROVISION 

the  Sixth  VAT  Directive3.  According 

The  concept  of  VAT  group  was  only  introduced  in  Community  legislation  by 
Article 4(4)  of 
the  Explanatory 
Memorandum4,  the  aim  of  the  provision  on  VAT  grouping  is  to  allow  Member 
States,  for  the  purposes  of  administrative  simplification  or  combating  abusive 
practices (e.g. when a business is split into several taxable persons so that each may 
benefit from a special scheme), to not regard as separate taxable persons those whose 
'independence' is purely a legal technicality. 

to 

Article 4(4) was amended by Council Directive 2006/69/EC of 24 July 20065 when a 
second subparagraph was added. According to the Explanatory Memorandum to the 
Proposal6, the aim of the amendment was to help Member States prevent  an  unfair 
result  arising  from  the  operation  of  VAT  groups.  Thus,  the  second  subparagraph 
allows  Member  States  to  adopt  measures  to  prevent  the  VAT  grouping  provisions 
from giving rise to tax evasion or avoidance. 

Following  the  recast  of  the  Sixth  Directive,  Article 11  of  the  VAT  Directive  now 
contains  the  provisions  on  VAT  groups.  The  recast  modified  neither  the  field  of 
application of VAT grouping schemes nor their formal prerequisites. 

Lastly, it should be stressed that this Communication does not refer to the concept of 
'cost  sharing  arrangements',  which  on  the  basis  of  Article 132(1)(f)  of  the  VAT 
Directive  currently  constitute  a  compulsory  exemption  for  certain  activities  in  the 

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Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member 
States relating to turnover taxes-Common system of value added tax: uniform basis of assessment (OJ L 
145, 13.6.1977, p. 1). 
Proposal for a Sixth Council Directive on the harmonisation of legislation of Member States concerning 
turnover  taxes-common  system  of  value  added  tax:  uniform  basis  of  assessment  (COM(73)  950, 
20.6.1973). 
Council  Directive  2006/69/EC  of  24  July  2006  amending  Directive  77/388/EEC  as  regards  certain 
measures to simplify the procedure for charging value added tax and to assist in countering tax evasion 
or avoidance, and repealing certain Decisions granting derogations (OJ L 221, 12.8.2006, p. 9). 
Proposal  for  a  Council  Directive  amending  Directive  77/388/EEC  as  regards  certain  measures  to 
simplify  the  procedure  for  charging  value  added  tax  and  to  assist  in  countering  tax  evasion  or 
avoidance, and repealing certain Decisions granting derogations (COM(2005) 89 final, 16.3.2005). 

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public  interest  and  a  new  form  of  which  was  also  introduced  in  the  recent 
Commission  proposal  regarding  the  VAT  treatment  of  insurance  and  financial 
services7.  As  concepts,  these  cost  sharing  arrangements  are  in  fact  totally  different 
from the VAT group concept, as they do not, for instance, have the effect of creating 
a new single taxable person. 

3. 

ANALYSIS OF THE VAT GROUP PROVISION 

Article 11  of  the  VAT  Directive  has  to  be  interpreted  in  the  light  of  the 
aforementioned original objectives. 

3.1. 

Need for prior consultation of the VAT Committee 

Consultation of the VAT Committee is obligatory before introducing a national VAT 
grouping  scheme.  The  very  wording  of  the  provision  makes  it  clear  that  a  VAT 
grouping  scheme  can  only  be  implemented  after  the  VAT  Committee  has  been 
consulted8. The Commission takes the view that this must be taken to mean that the 
obligation to consult the VAT Committee has to be fulfilled prior to the publication 
of  the  national  rules  governing  the  VAT  grouping  scheme.  The  same  applies  to 
substantive amendments to existing VAT grouping schemes. 

In order to give full meaning to this provision, and in particular to allow a genuine 
discussion in the VAT Committee, such a consultation should take place sufficiently 
in advance. 

Since  the  second  paragraph  of  Article 11  is  an  integral  part  of  the  VAT  grouping 
provision, the requirement to consult the VAT Committee also applies here even if 
this option is contained in a separate paragraph. 

3.2. 

The main purpose of the VAT grouping option 

The  essential  effect  of  implementing  the  VAT  grouping  option  provided  for  in 
Article 11  is  to  allow  taxable  persons  who  are  bound  to  one  another  by  financial, 
economic and organisational links no longer to be treated as separate taxable persons 
for the purposes of VAT, but as one single taxable person. In other words, a number 
of  closely  bound  taxable  persons  are  merged  into  a  new  single  taxable  person  for 
VAT purposes. This effect has been confirmed by the European Court of Justice in 
Case C-162/07, Ampliscientifica9. 

In  this  regard,  a  VAT  group  could  be  described  as  a  'fiction'  created  for  VAT 
purposes,  where  economic  substance  is  given  precedence  over  legal  form.  A  VAT 
group is a particular type of taxable person who exists only for VAT purposes. It is 

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Proposal  for  a  Council  Directive  amending  Directive  2006/112/EC  on  the  common  system  of  value 
added  tax,  as  regards  the  treatment  of  insurance  and  financial  services  (COM(2007)  747  final/2, 
20.2.2008)  and  Proposal  for  a  Council  Regulation  laying  down  implementing  measures  for  Directive 
2006/112/EC  on  the  common  system  of  value  added  tax,  as  regards  the  treatment  of  insurance  and 
financial services (COM(2007)746 final/2, 20.2.2008). 
See  to  that  effect  the  judgment  of  the  European  Court  of  Justice  in  Case  C-162/07,  Ampliscientifica, 
paragraph 18 (OJ C 171 of 5.7.2008, p. 8). 
Case C-162/07, Ampliscientifica, paragraph 19. 

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based  on  the  actual  financial,  economic  and  organisational  bonds  between 
companies.  Whilst  each  member  of  the  group  retains  its  own  legal  form,  for  VAT 
purposes only, the formation of the VAT group is given precedence over legal forms 
according to e.g. civil law or company law. Thus, by joining a VAT group, the group 
member  for  VAT  purposes  dissolves  itself  from  any  possible,  simultaneously 
existing  legal  form  and  instead  becomes  part  of  a  new  separate  taxable  person  for 
VAT purposes – namely, the VAT group. 

From  the  treatment  of  a  VAT  group  as  a single taxable  person,  it  follows logically 
that the group can only be identified for VAT purposes by a single VAT number in 
accordance  with  Article 214  of  the  VAT  Directive,  to  the  exclusion  of  any  other 
individual VAT number. The use of just one number is dictated by the need, for both 
the economic operators and the tax authorities of the Member States, to identify with 
a  degree  of  certainty  those  who  are  effecting  transactions  subject  to  VAT10.  The 
individual identification number of each of the members may still be kept by the tax 
authorities,  but  only  in  order  to  enable  monitoring  of  the  internal  activities  of  the 
VAT group. 

3.3.  Who can form a VAT group? 

Under Article 11, Member States may regard as a single taxable person any persons 
established in the territory. 

3.3.1.  The notion of 'persons' 

The Commission is of the opinion that the reference to 'persons' in Article 11 applies 
only  to  those  who  fulfil  the  criteria  for  being  a  taxable  person  for  VAT  purposes. 
Thus,  an  entity  which  is  a  non-taxable  person,  either  because  that  person  does  not 
satisfy  the  definition  in  Article 9(1)  or  because  it  is  a  public  body  acting  under  the 
conditions set out in the first subparagraph of Article 13(1), cannot be a member of a 
VAT group. 

It must be  kept  in  mind that Article 11 falls under  Title III 'Taxable persons' in  the 
VAT Directive. Moreover, Article 11 does not provide for any derogation from the 
definition of a taxable person in Article 9(1) of that Directive. 

It follows logically that the persons regarded as a 'single' taxable person must also be 
taxable persons in their own right, since the meaning of the 'grouping' concept is to 
'group together' persons who are all engaged in activities falling within the scope of 
the VAT Directive. In this connection, the adjective 'single' implies that, without the 
group,  there  would  be  several  taxable  persons:  the  status  of  a  taxable  person  is 
therefore implicitly present in the case of all the group members. 

The term 'persons' has been used by the legislator in order to avoid repetition of the 
term  ‘taxable  persons’  rather  than  in  order  to  include  those  not  liable  for  tax.  The 
same drafting technique is also consistently used in the different language versions11. 
This  drafting  technique  has  been  used  by  the  legislator  elsewhere  in  the  Directive, 

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Case C-162/07, Ampliscientifica, paragraph 20. 
The English version refers to 'persons', the French version refers to 'les personnes', the German version 
refers to 'ansässige Personen'. 

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inter alia in the first sentence of Article 9(2) where the term 'persons' has clearly been 
used to refer to taxable persons. 

It is also clear from the settled case-law of the Court that the basic terms in the VAT 
Directive  such  as  'taxable  person'  and  'economic  activities'  are  objective  in  nature, 
without regard to the purpose or results of the transactions concerned12. Moreover, in 
accordance with the purpose of the Directive, which inter alia is to found a common 
system  of  VAT  upon  a  uniform  definition  of  'taxable  person',  that  status  must  be 
assessed solely on the basis of the criteria laid down in that Directive13. 

The  wording  chosen  by  the  Court  in  the  Ampliscientifica  case14  confirms  this 
interpretation. According to the Court: 

'It  follows  that  treatment  as  a  single  taxable  person  precludes  persons  who  are  thus 
closely  linked  from  continuing  to  submit  VAT  declarations  separately  and  from 
continuing  to  be  identified,  within  and  outside  their  group,  as  individual  taxable 
persons […]'. 

In the light of the foregoing, the Commission takes the view that it is essential that 
the  application  of  VAT  grouping  schemes  does  not  affect  the  concept  of  taxable 
person.  Allowing  non-taxable  persons  to  join  a  VAT  group  would  certainly  affect 
that definition. Where a non-taxable person joins a VAT group, that person becomes 
part of that 'single' taxable person15. A non-taxable person who has neither rights nor 
obligations under the VAT Directive should not be able to become a taxable person 
on the mere ground that the non-taxable person joins a VAT group. This would be to 
circumvent the criteria determining what constitutes a taxable person. 

3.3.2.  The notion of a 'person established in the territory of that Member State' 

3.3.2.1.  Interpretation of this notion: 

The  very  wording  of  Article 11  restricts  the  territorial  scope  of  a  VAT  grouping 
scheme implemented by a Member State to persons established in the territory of that 
specific  Member  State.  It  is  therefore  crucial  to  know  who  can  be  regarded  as 
'established' within the meaning of this provision. 

There  is  no  existing  guidance  as  to  the  meaning  of  that  notion.  The  Explanatory 
Memorandum  to  the  proposal  for  a  Sixth  VAT  Directive  does  not  provide  any 
explanation in respect of the restriction  of  the  territorial  application  to  the  Member 
State concerned. 

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Case C-255/02, Halifax, paragraph 55 (OJ C 131, 3.6.2006, p. 1). 
Case C-186/89 W.M. van Tiem, paragraph 25 (European Court reports 1990 Page I-04363). 
Case C-162/07, Ampliscientifica, paragraph 19. 
Opinion  of  the  Advocate  General  on  24  April  1991,  Case  C-60/90,  Polysar  Investments  Netherlands 
BV, paragraphs 8 and 9. The Opinion gave a set of reasons why only those liable for VAT should be 
permitted to be members of a VAT group. In particular the Opinion held that the second subparagraph 
of Article 4(4) of the Sixth VAT Directive was not aimed at amending the conditions for liability to tax 
which  were  set  out  in  Article  4(1).  Accordingly,  the  conclusion  was  drawn  that  Article  4(4)  did  not 
enable a Member State to treat two persons who were closely bound to one another as a single taxable 
person where it was established that one of those persons did not engage in any 'economic activity' for 
VAT purposes. 

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The  Commission  takes  the  view  that  'established  in  the  territory  of  that  Member 
State' includes businesses with their seat of economic activity in the territory of the 
Member State implementing the VAT grouping scheme, but does not include those 
fixed  establishments  which  are  situated  abroad.  However,  fixed  establishments  of 
foreign  businesses  situated  in  the  territory  of  the  Member  State  implementing  the 
VAT  grouping  scheme  must  be  included.  Accordingly,  only  businesses  with  their 
seat  of  economic  activity  or  fixed  establishments  of  such  businesses  or  of  foreign 
businesses,  physically  present  in  the  territory  of  the  Member  State  that  has 
introduced the VAT grouping scheme, may join a VAT group. 

There are a number of arguments in support of such an interpretation: 

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Firstly,  it  is  in  line  with  the  current  wording  of  the  territoriality  criterion  in 
Article 11. 

Secondly,  the  territorial  scope  coincides  with  the  VAT  jurisdiction  of  the 
Member State implementing the VAT grouping scheme, and thereby also with 
the  VAT  identification  requirements  applicable  therein.  In  this  way  the  VAT 
grouping  scheme  remains  easy  to  manage  and  control  insofar  as  all  the 
members of a group are subject to the rules of the same Member State. 

Thirdly,  the  notion 'established' within the meaning of Article 11 corresponds 
to 'established' as it can be found in other provisions of the VAT Directive and 
must be interpreted in the same way. 

The  main  justification  for  excluding  fixed  establishments,  situated  abroad,  of 
businesses  with  their  seat  of  economic  activity  in  the  Member  State  implementing 
the VAT grouping scheme is the fact that they are not physically established in the 
territory of that Member State. Since the VAT grouping scheme is an optional mode, 
chosen by one Member State, it should not have the effect of extending beyond the 
physical  territory  of  the  Member  State  which  has  introduced  the  VAT  grouping 
scheme. Otherwise the fiscal sovereignty of another Member State may be infringed. 
Moreover,  if  two  Member  States  were  to  choose  to  introduce  VAT  grouping 
schemes, it is possible that the fixed establishment located abroad could form part of 
VAT  groups  in  both  Member  States.  Such  a  result  is  neither  compatible  with  the 
basic  principles  of  the  common  VAT  system,  nor  manageable  at  national 
administration  level.  From  the  point  of  view  of  control,  this  is  not  an  acceptable 
outcome. 

While  it  is  clear  that  Article 11  restricts  the  territorial  scope  of  a  VAT  grouping 
scheme,  it  is  likewise  obvious  that  the  interpretation  must  be  in  line  with  the 
economic  requirements  and  the  principle  of  freedom  of  establishment  as  set  out  in 
Article 43, read in conjunction with Article 48 of the EC Treaty, which enables fixed 
establishments  of  a  foreign  business  to  benefit  from  the  same  tax  opportunities  as 
those  provided  to  businesses  governed  by  national  law  in  the  Member  State 
concerned. The abovementioned interpretation allows fixed establishments of foreign 
businesses situated in the Member State implementing the VAT grouping scheme to 
be included and to benefit from the same tax opportunities as those provided to the 
businesses in that Member State, and will therefore be in line with the EC Treaty. 

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3.3.2.2.  Link with the FCE Bank case 

In the FCE Bank case16, the Court stated that a fixed establishment, which  is not a 
legal entity distinct from the company of which it forms part, established in another 
Member State and to which the company supplies services, should not be treated as a 
taxable person by reason of the costs imputed to it in respect of those supplies. Thus, 
a  supply  of  services  within  the  same  legal  entity  does  not  fall  within  the  scope  of 
VAT. 

The  exclusion  of  fixed  establishments  situated  abroad  of  a  taxable  person  in  the 
Member  State  which  has  introduced  the  VAT  grouping  scheme  may  at  first  glance 
seem  inconsistent  with  the  FCE  Bank  ruling.  However,  this  ruling  makes  no 
reference  whatsoever  to  the  situation  of  a  VAT  group.  Furthermore,  it  should  be 
noted  that,  by  joining  a  VAT  group,  the  taxable  person  becomes  part  of  a  new 
taxable person, the VAT group and, consequently, dissolves itself for VAT purposes 
from its fixed establishment located abroad. This means that if a taxable person joins 
a VAT group, any services it subsequently supplies to its fixed establishment abroad 
would  be  considered  as  supplies  made  between  two  separate  taxable  persons.  That 
the  fixed  establishment  situated  abroad  is  excluded  from  being  eligible  for  a  VAT 
group in that Member State is therefore not at variance with the FCE Bank ruling. 

3.3.3.  All activities included and only member of one VAT group at a time 

Because a VAT group is considered as a single taxable person, identified through the 
use  of  one  single  VAT  identification  number,  all  activities  of  the  group  members 
have to be included. A group member with several fields of activity in the Member 
State which has introduced the VAT grouping scheme should, therefore, not be able 
to exclude one or more of its activities from the VAT group of which he forms part, 
except  for  activities  carried  out  by  establishments  situated  outside  of  that  Member 
State. 

For  the  same  reason,  national  VAT  grouping  schemes  should  preclude  taxable 
persons from joining more than one VAT group at a time. This is also essential from 
a tax monitoring perspective. 

3.3.4.  The condition of 'financial, economic and organisational links' 

The Commission is of the opinion that this condition is to be interpreted as meaning 
that all three links have to be met during the entire time a VAT group exists and, that 
any member no longer fulfilling all three links, should be required to leave the VAT 
group. The reasons for this are the following: 

–  First,  it  follows  from  the  use  of  the  coordinating  conjunction  'and'  that  the 

conditions are cumulative. 

–  Second,  since  the  VAT  group  is  a  special  concept  of  taxable  person  and  thus 
functions  on  an  exceptional  basis,  it  is  essential  that  it  is  linked  to  fairly  strict 
conditions,  which  is  ensured  by  the  accumulation  of  the  above-mentioned 
requirements. 

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Case C-210/04, FCE Bank (OJ C, 3.6.2006, p.14). 

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–  Third,  such  an  accumulation  contains  further  guarantees  against  abusive 
application  of  VAT  groups,  since  it  helps  to  exclude  purely  artificial  structures 
devoid of any economic significance. 

In  view  of  the  general  principles  guiding  this  provision,  the  Commission  considers 
that the following definitions of the three links could serve as guidelines. 

The financial link: Defined by reference to a percentage of participation in the capital 
or in voting rights (over 50%), or defined by reference to a franchise contract. This 
guarantees that one company has the actual control of another.  

The  economic  link:  Defined  by  reference  to  the  existence  of  at  least  one  of  the 
following  situations  of  economic  cooperation.  The  principal  activity  of  the  group 
members  is  of  the  same  nature,  or  the  activities  of  the  group  members  are 
complementary or interdependent, or one member of the group carries out activities 
which are wholly or substantially to the benefit of the other members. 

The organisational link: Defined by reference to the existence of a shared, or at least 
partially shared, management structure. 

3.3.5.  To which business sectors should a VAT grouping scheme apply? 

A VAT grouping scheme needs to be open to all sectors of economic activity in the 
Member  State  which  introduces  such  a  scheme.  This  follows  from  the  wording  of 
Article 11,  where  there  is  no  limitation  to  certain  sectors.  Moreover,  this  follows 
from  the  principle  of  fiscal  neutrality.  A  national  VAT  grouping  scheme  cannot  be 
introduced only for some sectors, as this would favour certain businesses over others 
and might also be open to criticism from a State aid viewpoint (selectivity). 

Limitations to the availability of the VAT grouping scheme could be justified only if 
there  is  a  need  to  take  action  against  potential  abuse  for  clearly  identified 
transactions.  Without  such  a  justification  it  is  not  acceptable  for  a  VAT  grouping 
scheme to be confined by national law to a particular sector, such as the financial or 
insurance sector, for example. 

3.4. 

The rights and obligations of a VAT group 

3.4.1.  On whom do the obligations fall? 

Since  a  VAT  group  is  considered  to  be  a  single  taxable  person,  it  follows  that  the 
group is subject to the same rights and obligations as any other taxable person and 
that all the provisions of the VAT Directive, as well as the rulings by the European 
Court of Justice, apply to it. Thus, the obligations fall on the VAT group as such, not 
its  members.  Therefore,  when  creating  a  national  VAT  grouping  scheme,  it  is 
essential  to  design  the  scheme  within  the  Community  legal  framework  set  out  for 
ordinary taxable persons.  

The single VAT number of the VAT group is to be used, for example, when issuing 
invoices  for  supplies  of  goods  or  services  deemed  to  have  been  carried  out  by  the 
VAT group. 

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Like any other taxable person, the VAT group must submit VAT returns and, where 
appropriate, recapitulative statements. The VAT return will consist of the group's net 
sum of VAT derived from each individual member, account being taken of the fact 
that  transactions  between  members  do  not  give  rise  to  the  charging  or  payment  of 
VAT. This means that the VAT claims of certain members of the group are credited 
against the VAT debts of other members: for VAT purposes, both claims and debts 
are  claims  and  debts  of  the  VAT  group  and  not  of  the  individual  members.  In  the 
Ampliscientifica case17, the Court held that the treatment as a single taxable person 
precludes  persons  who  belong  to  a  VAT  group  from  continuing  to  submit  VAT 
returns  separately  as  individual  taxable  persons,  since  the  single  taxable  person 
alone, i.e. the VAT group, is authorised to submit such returns. 

It  follows  from  this  that  the  VAT  group  option  is  primarily  an  administrative 
simplification measure. 

3.4.2.  Treatment of supplies to or from third parties 

As  regards  third  parties,  the  VAT  group  acts  as  a  single  taxable  person.  As  a 
consequence, all supplies of goods and services made by any of the group members 
for a recipient not belonging to the group are deemed to have been carried out by the 
group itself, not by the individual member. In the same way, supplies of goods and 
services by third parties to one or more of the members of the group are considered 
to  have  been  made  to  the  group  itself.  Similarly,  imports  and  intra-Community 
acquisitions  made  by  the  members  of  the  group  are  deemed  to  be  effected  by  the 
group itself. Thus, the VAT situation of the group and the treatment of its incoming 
and  outgoing  transactions  are  fully  comparable  to  those  of  a  taxable  person  with 
different branches. 

3.4.3. 

Intra-group supplies 

As regards the VAT group's internal transactions, i.e. transactions for consideration 
between the individual members, it also follows from the VAT group being treated 
as  a  single  taxable  person  that  these  transactions  should  be  deemed  to  have  been 
carried out by the group for itself. This is one of the most important consequences of 
forming  a  VAT  group,  since,  except  for  any  deemed  supplies  (Articles  16, 18, 26 
and 27), the VAT group's internal transactions for consideration do not exist for VAT 
purposes; they are 'out of scope'. It follows from this that the VAT group option may 
also have cash flow advantages for businesses. 

3.4.4.  Rights and obligations when a VAT group is formed or dissolved 

At the same time as the VAT group becomes a single taxable person, the VAT rights 
and obligations of the individual members are automatically transferred to the VAT 
group. The same applies when a taxable person joins an already existing VAT group. 

Article 11  does  not  contain  any  provision  on  how  long  an  individual  member  must 
remain  a  member  of  the  VAT  group.  The  second  paragraph  of  Article 11  does, 
however,  permit  Member  States  to  adopt  measures  in  order  make  sure  that  no 
unjustified  advantage  is  derived  from  the  VAT  grouping  scheme.  The  Commission 

17 

Case C-162/07, Ampliscientifica, paragraph 19. 

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takes the view that this allows for measures such as laying down a minimum time for 
membership to be taken. 

Since the VAT group is regarded as a single taxable person, which has assumed the 
members' rights and obligations regarding VAT, it follows that when a VAT group 
ceases  to  exist  the  rights  and  obligations  assumed  by  the  group  revert  to  the 
individual  members  from 
to  exist. 
Simultaneously,  the  former  members  of  the  group  return  to  the  status  of  individual 
taxable persons. The same applies in a situation where a member leaves the group. 

the  VAT  group  ceases 

the  moment 

3.5. 

The right of deduction of a VAT group 

3.5.1.  Rules on the right of deduction applicable to the VAT group 

The treatment of the VAT group as a single taxable person for VAT purposes has the 
effect  that  the  right  to  deduct  input  VAT  is  determined  on  the  basis  of  the 
transactions of the group as such with third parties. 

In this context, the rules concerning adjustment to the right of deduction will need to 
be properly applied, e.g. when a taxable person enters or leaves the group, or if the 
activities of a group member change in such a way that the right of deduction of the 
group needs to be changed. 

In this respect it should be recalled that, in order to determine the deductible VAT, 
Article 173  offers  Member  States  different  options.  While  the  general  rule  is  the 
deductible proportion rule (the 'pro-rata') as set out in Articles 174 and 175, a system 
of direct attribution may also be used to better reflect actual use. 

With  these  options,  there  is  scope  for  significant  differences  between  the  Member 
States as regards the methods used to determine the right to deduct input VAT, which 
may  result  in  differences  in  the  deductible  amount  of  VAT  in  Member  States. 
Moreover, there are no common rules for limiting the right to deduct input VAT in 
respect  of  expenditures  which  are  not  strictly  business  expenditure,  for  which 
Member States may be able to restrict deduction pursuant to Article 176. 

3.5.2.  The impact of a VAT group on the right of deduction 

One  of  the  most  important  consequences  of  forming  a  VAT  group  is  the 
'disappearance', from a VAT perspective, of the transactions between the members of 
the group. In a VAT group consisting only of taxable persons with the right to full 
deduction,  the  effect  on  the  tax  revenue  is  neutral  for  the  Member  State  in  whose 
territory the VAT group operates. 

However,  in  a  VAT  group  consisting  also  of  taxable  persons  with  no  right  of 
deduction or a right of partial deduction, it may be that the effect on the tax revenue 
is no longer neutral. Non-deductible VAT payable in respect of taxable transactions 
carried out by one of the members of the group to the benefit of another member who 
has no right of deduction or only a right of partial deduction is effectively lost for the 
State,  since  internal  transactions  are  non-existent  for  the  purposes  of  VAT.  In  that 
respect, the VAT group neutralizes VAT costs incurred on intra-group transactions. 

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It  follows  that  a  VAT  grouping  scheme  can  offer  financial  advantages  to  VAT 
groups  which  include  members  with  no  right  of  deduction  or  a  right  of  partial 
deduction.  These  advantages  can  vary  depending  on  the  implementing  modalities 
chosen by Member States, in particular as concerns the rules relating to the right of 
deduction. 

The  Commission  takes  the  view  that  it  is  of  the  utmost  importance  that  Member 
States ensure the correct and full application of Community rules governing the right 
of deduction of VAT groups. 

3.5.3.  The need to take anti-avoidance measures 

Additionally, the second paragraph of Article 11 allows Member States to adopt any 
measures needed to prevent tax evasion or avoidance. 

It should also be recalled that, in the Halifax judgment18, the Court has made it clear 
that Member States are empowered to combat abusive practices. 

The  Commission  in  any  event  takes  the  view  that  no  unjustified  advantage  or 
unjustified harm should arise from the implementation of the VAT grouping option. 

Bearing  in  mind  the  original  objectives  of  VAT  grouping  option,  which  should  be 
seen  predominantly  as  a  simplification  measure,  no  scheme  based  on  that  option 
should distort competition or run counter the principle of fiscal neutrality. A situation 
where the VAT group option is used to attract businesses in specific Member States, 
and thus be a source of fiscal competition between them, needs to be avoided. 

It is therefore of the utmost importance that Member States make use of this option 
and take all necessary measures to avoid tax evasion or avoidance, as well as abusive 
practices,  carried  into  effect  through  the  use  of  their  national  VAT  grouping 
schemes.  No  unjustified  advantage  or  unjustified  harm  should  arise  from  the 
implementation of the VAT grouping option. 

4. 

CONCLUSIONS 

The Commission invites the Council and the European Parliament to take note of its 
position on VAT grouping schemes as set out in this Communication with a view to 

•  Contribute  to  a  more  uniform  application  of  Article 11  of  the  VAT  Directive, 
thereby avoiding negative impacts on the internal market and contradictions with 
the basic principles of the Communities' VAT system; 

•  Serve as guidelines for Member States when introducing VAT grouping schemes 

into their national legislation or when amending such schemes. 

This  Communication  does  not  affect  the  Commission's  role  as  guardian  of  the 
Treaties pursued in accordance with Article 211 of the Treaty. 

18 

Case C-255/02. 

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