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?