VAT grouping: is it forever and ever?

In 2017 the concept of the VAT group will have existed for a decade in Belgium. This article is not being written in celebration thereof, but we wish to use the anniversary to recall a number of important issues concerning the VAT groups of today.

1. Creation of a VAT group

Since 1 April 2007 Belgian law has allowed for taxable parties based in Belgium that are legally independent but financially, organisationally and economically closely tied to each other to be considered as a single taxable party – a VAT group. The most striking characteristics of such a unification are that the activities between the members (of the VAT group) fall outside of the scope of VAT and that the right to deduction is no longer determined at member level but at group level on the basis of the activities that the VAT group provides for the outside world (the non-members). 

A number of opportunities for optimisation can be found in those characteristics that, since 2007, enticed and still entices numerous groups of affiliated taxable parties to create a VAT group. In order to create a VAT group the affiliated members must convince the tax authorities that they are associated on a financial, organisational and economic level.

The financial affiliation is in principle demonstrated by means of the shareholdership, supervisory relationships and the voting rights of the members in regard to each other.

The organisational affiliation is in principle demonstrated by means of the joint management of the members.

The economic affiliation is in principle demonstrated by means of the activities of those members. They could be of the same nature, they could support each other or they could even be performed on behalf of another member.

2. After formation – is it forever?

Once such affiliations are accepted by the authorities, then a VAT group is recognised. But these affiliations cannot only exist at the time of the formation – they must continue to exist for the time that the VAT group exists. It is however in this requirement of durability that there lies a hidden risk.

Over the years the financial, economic and organisational characteristics of one or more taxable parties and the associated affiliations can change. A new generation acquires the shares, mandates of directors are not extended, agreements are terminated, and so on, without the taxable parties being aware that as a result the VAT group is no longer permitted to exist or can no longer exist in its present form.

This unconscious cessation of or change to the VAT group entails a number of significant risks. Firstly, the intended optimisation may no longer be maintainable and it continues unjustly after the unconscious cessation.

Further, specific VAT obligations are not fulfilled or not properly fulfilled. For example, the authorities are not informed of the amended VAT situation and the periodic VAT obligations continue to be unjustly performed by the group instead of by the members after the unconscious cessation.

But the biggest risk is that one could not perform VAT revisions with respect to the capital resources. In the event of a cessation or departure from a VAT group, and if the revision period has not yet expired, a revision must be conducted of the VAT originally deducted that was levied on the capital resources. This revision is conducted for both the departing member/members as well as the VAT group. Specifically, it is the VAT group that shall be subjected to a downwards revision. If the downwards revision is not conducted, there is a risk that there will be an additional tax assessment imposed by the authorities in the event of an audit.

The above risks and their consequences can be checked and limited, even if the unconscious cessation on the part of the taxable party is only discovered later. This is why it is important to – especially during times of structural changes within a company, but also at any other given time – ask the question on occasion of the VAT group’s tenth anniversary: is our VAT group still a VAT group? 

Quickly detect system risks
Without a Legal Entity Identifier your company will not be trading on the stock market in 2018
  As from 3 January 2018, every legal entity that buys or sells financial instruments must have a Legal Entity Identifier or LEI. Legal Entity Identifier A LEI is a 20-digit alpha-numeric code enabling quick identification of legal entities that are active on the (international or local) financial markets. The LEI enables regulators to quickly detect system risks. Registrati
A summary of the main points
Immovable property leases to include VAT
  Although currently there is just a draft bill on this issue, which obviously can be subject to change in the meantime, we would like to summarize the main points of the upcoming revolution in the VAT landscape: immovable property leases may become subject to VAT. History Until recently, immovable property leases have – in principle – been exempt from VAT (section 44, paragr
UBO = Ultimate Beneficial Owner
The UBO register: new disclosure requirements planned for your company’s administrative body
As a result of the insertion of sections 14(1) and 14(2) into the Belgian Companies Code all companies must in the future obtain adequate, accurate and current information about their ‘ultimate beneficial owners’ (UBOs) and record the data in the new ‘UBO Register’, a central register containing data about companies and the natural persons behind them. In view of the unwavering atte
Introduction of the matrimonial property law
Is it the end of the final set-off clause or is it getting new life?
  Much has been said about the final set-off clause in recent years. After the Court of Cassation in 2017 ruled in favour of the tax payer that the claim was deductible in the scope of the payable succession duties, the Flemish regulator decided to come to the aid of the tax authorities by changing the law. What is a final set-off clause and how does it work? Many spouses married un
Also the unequal treatment gets reviewed
Benefit in kind for housing: how to anticipate the higher or lower scenario?
Discrimination as regards the benefit in kind for housing has been highlighted on several occasions. Specifically, it relates to the unequal treatment of the same benefits, whether in terms of provision by a sole trader or provision by a legal person. In the most common cases, the benefit arising from being a limited company is almost four times more expensive taxation-wise than the benefit arisin
To reduce the financial burden
Start-up reduction on social security contributions for self-employed persons
The start-up reduction was part of the 'Summer agreement' and took effect on 1 April 2018. With this initiative, the government intends to reduce the financial burden of self-employed persons in start-ups, who often have low incomes at the start of their activity, thereby stimulating entrepreneurship.  Which self-employed persons are eligible?  The reduction measure applies to all se
A full overview
Your mortgage in the personal income tax return assessment year 2018
The new tax return form for personal income for tax assessment year 2018 has recently been published, so it is high time to examine how you can correctly fill in your mortgage in your personal income tax return. The biggest change in 2017 occurred in the housing taxation system of the Brussels-Capital Region. The other regions have all maintained a status quo compared to last year. A full overview
The labyrinthine of the personal income tax return made more user-friendly
Personal income tax return: changes to the form for assessment year 2018
On 6 April 2018, the model for the personal income tax return form relating to assessment year 2018 was published.
we will analyse the guidelines related to this reform
After the new inheritance law comes the ‘drastic’ reduction in inheritance tax… or not yet?
Further to the inheritance tax reform and the changes planned in the matrimonial property law, the Flemish government has also announced a change to inheritance tax. The aim was not only to simplify, relax and reduce this grief-related tax, making it more in tune with the new inheritance law, but also to create more alignment with new family relationships. There was talk of a ‘drastic’ change
Revolutionary decree
Belgian Tax Administration rebuffed: exit “subject-to-tax clause”?
On 25 January 2018, the Court of Cassation reached a remarkable decision in the context of allocation of taxing rights for professional income earned within an international context. The dispute In concreto, the case pertained to professional income earned by a professional cyclist. During the period 2007-2009, said cyclist was engaged by a Belgian employer and participated in numerous races a

Subscribe to our newsletter