Table of Contents Contributors 565 1. Introduction 567 2. Taxable Persons 571 2.1. VAT grouping 571 2.1.1. Austria 572 2.1.2. Belgium 572 2.1.3. Cyprus 573 2.1.4. Czech Republic 573 2.1.5. Denmark 574 2.1.6. Estonia 574 2.1.7. Finland 575 2.1.8. Germany 575 2.1.9. Hungary 576 2.1.10. Ireland 576 2.1.11. Latvia 577 2.1.12. Netherlands 577 2.1.13. Slovak Republic 577 2.1.14. Sweden 578 2.1.15. United Kingdom 578 2.2. Joint VAT registration 579 2.2.1. France 579 2.2.2. Italy 580 2.2.3. Romania 580 2.2.4. Spain 581 2.3. Supply of new immovable property 582 2.3.1. New buildings 582 2.3.2. Occasional supplies 584 2.4. Registration threshold 584 3. Taxable Events 591 3.1. Transfer of businesses 591 3.2. Intra-Community acquisitions of goods 593 3.3. Consignment goods and call-off stocks 593 3.3.1. Consignment goods 593 3.3.2. Call-off stocks 594 3.3.3. Simplification measure 595 4. Place and Time of Taxation 599 4.1. Distance selling thresholds 599 4.2. Place-of-supply rules for services 599 4.2.1. Place of supply from 2010, 2011, 2013 and 2015 600 4.2.2. Place of supply prior to 2010 603 4.3. Effective-use-and-enjoyment criterion 605 4.3.1. Effective use and enjoyment in a Member State 607 4.3.2. Effective use and enjoyment outside European Union 611 561 2015 IBFD
VAT Options Exercised by the Member States (situation on 1 January 2015) 4.4. Time of supply 615 4.4.1. Issue of invoices 616 4.4.2. Cash accounting 618 5. Taxable Amount 621 5.1. Open-market value 621 5.2. Bad-debt relief 624 6. Reduced Rates 627 7. Exemptions 657 7.1. Letting of immovable property 657 7.1.1. Letting of residential property 658 7.1.2. Letting of commercial property 659 7.2. Options for taxation 659 7.2.1. Letting of immovable property 659 7.2.2. Financial services Supplies of immovable property 660 7.3. Standstill exemptions 663 7.3.1. Admission to sporting events 663 7.3.2. Artists and liberal professionals 664 7.3.3. Supply of new buildings 665 7.3.4. Passenger transport 665 8. Zero Rating 669 8.1. Provisioning of sea vessels, etc. 669 8.2. Goods under customs control 670 8.3. Goods and services supplied to exporters 671 8.4. VAT warehousing 671 9. Deduction of Input Tax 673 9.1. Immediate deduction 673 9.2. Exclusions 675 9.3. Excess input tax 683 9.4. Pro rata 686 9.5. Adjustments of input tax deductions 687 9.5.1. Non-payment and stolen goods 687 9.5.2. Capital goods Adjustment period 687 9.5.3. Capital goods Services 688 9.6. Refunds to non-resident businesses 690 9.6.1. Refund procedure 690 9.6.2. Refund thresholds 691 9.6.3. Reciprocity principle 693 9.6.4. Refund offices 694 10. Liability To Pay VAT 703 10.1. Reverse charge mechanism 703 10.1.1. Optional reverse charge mechanism Non-resident suppliers 704 2015 IBFD 562
Table of Contents 10.1.2. Optional permanent reverse charge mechanism Specific transactions 706 10.1.3. Optional temporary reverse charge mechanism Specific transactions 709 10.2. Simplified intra-community triangulation 712 10.3. VAT representatives 712 10.4. Third party s joint and several liability 715 10.4.1. Cross-border relationships 715 10.4.2. Specific transactions 718 10.5. VAT on importation postponed accounting 724 10.6. Assessment and refund application periods 726 11. Administrative Obligations 733 11.1. Registration 733 11.2. VAT invoices 733 11.2.1. VAT invoices relating to exempt supplies 733 11.2.2. Time limits 734 11.2.3. Invoices drawn up by the customer 735 11.2.4. Customer s identification number 736 11.2.6. Storage of invoices 741 11.3. VAT returns 743 11.3.1. Tax periods 743 11.3.2. Electronic VAT returns 747 11.3.3. Filing of VAT returns and payment of VAT 748 11.4. Recapitulative statements 750 11.4.1. Additional details 750 11.4.2. Filing frequency 750 11.4.3. Filing format 752 11.4.4. Intra-Community acquisitions of goods 754 11.4.5. Receipt of cross-border services 754 12. Special Schemes 755 12.1. Flat-rate farmers 755 12.2. Margin scheme 756 13. Information Offices 759 14. Thresholds and Tax Rates 767 563 2015 IBFD
2. Taxable Persons 2.1. VAT grouping For VAT purposes, Member States may extend the concept of taxable person, i.e. any person who independently carries out economic activities, to groups of taxable and non-taxable 4 persons established in the territory of their country who, while legally independent, are closely bound to one another by financial, economic and organizational links 5. When those conditions are properly applied, VAT group treatment neutralizes the distinction between legal form and economic substance in that, even though they are legally independent, members of a commercial group of enterprises that actually function as a unitary commercial entity are treated as a single taxable person for VAT purposes. Logically, group treatment should entail all the joys and burdens of being a single entity, which implies, on the one hand, that intermediate supplies between the members of the group are ignored for VAT purposes, whereas, on the other hand, the tax authorities can hold each member of the group jointly and severally liable for payment of the VAT debts of the entire group. In its judgment in Ampliscientifica 6, the Court of Justice of the European Union (European Court of Justice ECJ) observed that treatment as a group precludes its members from continuing to file VAT returns separately, since the group alone is authorized to file such returns. The overview below also indicates whether or not the Member State in question allows that the members of a VAT group file their VAT returns separately. The overview below does not include the arrangements which, although they may have been introduced as VAT grouping arrangements, miss the essential feature of VAT grouping, i.e. the feature that supplies of goods and services between the members of the group are treated as internal supplies and, therefore, are ignored for VAT purposes. Although joint registration does not have a legal basis in the VAT Directive, the ECJ has accepted it in its judgment in Ampliscientifica. For the Member States that allow joint registration of legally independent entities, see 2.2. True VAT grouping is only available in the following Member States, under the conditions and restrictions indicated below. 4. In a highly controversial judgment of 9 April 2013 in the infringement procedure of the European Commission against Ireland, Case C-85/11, the ECJ concluded that, in view of its wording, context and objectives, Article 11 of the VAT Directive does not militate in favour of an interpretation according to which non-taxable persons cannot be included in a VAT group. 5. Under Article 11 of the VAT Directive. 6. ECJ judgment of 22 May 2008 in Ampliscientifica Srl, Amplifin SpA v. Ministero dell'economia e delle Finanze, Agenzia delle Entrate, Case C-162/07, [2008] ECR I-4019. 571 2015 IBFD
VAT Options Exercised by the Member States (situation on 1 January 2015) 2.1.1. Austria Under the doctrine of Organschaft, legal entities (Organgesellschaften) are not considered to be independent if they and their decision-making process are controlled by another entity (Organträger, parent company). The financial link between the Organgesellschaft and Organträger is determined in terms of the Organträger's voting rights in the Organgesellschaft, not its holding of the shares in the Organgesellschaft's capital. The Organgesellschaft is considered to be economically linked to the Organträger if its business activities are interconnected, supplementary or adjusted to those of the Organträger. The Organgesellschaft is linked to the Organträger from an organizational perspective if the Organträger's decisions are legally binding on the Organgesellschaft (its power to appoint or dismiss the Organgesellschaft's directors is not sufficient). Under those circumstances, the Organgesellschaft and the Organträger are considered to form a single entity for VAT purposes. The Organgesellschaft must be a legal entity ( GmbH or AG 7 ), not a partnership ( OG or KG 8 ). The Organträger may be a natural or legal taxable person or taxable association. It may even be a non-resident entity. However, in that case, the effects of the Organschaft are limited to transactions between the resident Organgesellschaften and the Austrian fixed establishment(s) of the non-resident entity, if any. The Organschaft comes automatically into effect when the criteria of relatedness are met. It is not possible to opt for group registration. The members of the group are neither entitled to file VAT returns separately nor jointly and severally liable for payment of the VAT debts of the group. 2.1.2. Belgium Provided that they are established in Belgium, legally independent taxable persons that are closely bound to one another from a financial, organizational and economic perspective may choose to be treated as a single taxable person for VAT purposes. Financial links exist, if there is, directly or indirectly, a de jure or de facto relationship of control between the members of the group or, if their capital is not subdivided in shares, the majority of the assets used for the purposes of the economic activities of the members of the group is, directly or indirectly, owned by the same person. Organizational links exist if, legally or effectively, the members of the group are, directly or indirectly, under common management, they organize their activities, in part or in full, in consultation with each another, or they are, legally or effectively, directly or indirectly, under the control of the same person. Economic links exist where the most important activities of the members are of the same nature, their activities are complementary, interdependent or form part of a common economic goal, or the activities of some members are, partly or in full, for the benefit of the other members. However, once a group 7. Gesellschaft mit beschränkter Haftung or Aktiengesellschaft. 8. Offene Gesellschaft or Kommanditgesellschaft. 2015 IBFD 572
Taxable Persons has come into existence and where one of the members directly participates for more than 50% in the capital of another company, the above conditions are deemed to be fulfilled as regards the latter company and that company must be included in the group ( compulsory member ), unless the parties show that, on organizational, economic or other grounds, the companies are not or cannot be considered to be closely linked to one another. The members of a VAT group must appoint one of them as their representative, which is entitled to exercise the rights and must fulfil the obligations laid down by the VAT Code and implementing decrees in the name and on behalf of the other members. The members of the group are not entitled to file VAT returns separately. They are jointly and severally liable for payment of the VAT debts of the group. 2.1.3. Cyprus Provided that they are incorporated in Cyprus, legally independent taxable persons that are closely bound to one another from a financial, organizational and economic perspective may opt to be treated as a single taxable person for VAT purposes. However, the tax authorities may refuse group treatment where the applicants have a poor record of compliance with the obligation to pay VAT, the tax authorities have reason to believe that the applicants intend to use the grouping facilities to operate a VAT avoidance scheme, or group treatment could create a distortion of competition in that supplies which themselves would be exempt become taxed under the grouping arrangements, thus positively affecting the rate of the group s input tax recovery. Tour operators may not form part of a VAT group if one of the members has a fixed establishment or is engaged in taxed activities abroad for the purpose of the tour operator s activities. One of the members is appointed as the representative member and all transactions carried out by the other members are attributed to that representative member. Transactions between the members of the group are ignored for VAT purposes. The group is registered in the name of the representative member, which is the sole entity that is responsible for compliance with the VAT obligations or entitled to exercise the rights of the other members of the group. The other members of the group will have their individual VAT registration number terminated and will therefore not be able to file VAT returns separately. The members of the group are jointly and severally liable for payment of the VAT debts of the group. 2.1.4. Czech Republic Taxable persons having their seat, place of business and business establishment for VAT purposes in the Czech Republic may apply for registration as a single taxable person, provided that they are bound to one another by either financial or organizational links. Financial links are deemed to exist where one person or 573 2015 IBFD
VAT Options Exercised by the Member States (situation on 1 January 2015) entity holds, directly or indirectly, at least 40% of the capital or voting rights in the members. As regards the financial link, not only the members of the group must be established in the Czech Republic but also the person or entity through which the condition of financial relatedness is fulfilled. The latter condition means that two Czech subsidiaries of a non-resident parent company cannot register as a group because, from a financial perspective, they are bound to one another through the non-resident parent company, unless the subsidiaries are actually managed by the same person or persons, i.e. are bound to one another by organizational links. Where the application is made before 31 October, group registration takes effect on 1 January of the following year. In that case, the member of the group that has been appointed as the representative of the group must already file an consolidated VAT return for the members of the group for the last tax period preceding the date on which the group comes into existence, i.e. for the fourth quarter or the month of December of the year of application. Applications made after 31 October take effect 1 year later. The same time limits apply to dissolution of the group. The members of the group are not entitled to file VAT returns separately and they are jointly and severally liable for any VAT debts of the group. 2.1.5. Denmark Taxable persons solely carrying out supplies subject to VAT may register as a VAT group on application. In addition, the tax authorities may grant permission to a taxable person carrying out taxable supplies to register, together with taxable persons carrying out exempt activities as well as non-taxable persons, as a VAT group. In order to register as a group in the latter scenario, one of the members (for example, the parent company) must, directly or indirectly, own all shares in the other members (for example, subsidiaries) and the members must be established in Denmark. The group comes into existence 1 month after the application for group registration was made. The group must file a single VAT return, which means that the individual members of the group are not entitled to file VAT returns separately. The VAT returns must be filed by the member that applied for group registration. The members of the group are jointly and severally liable for any VAT debts of the group. 2.1.6. Estonia Parent companies may form a VAT group with their subsidiaries where they hold more than 50% of the subsidiaries shares or voting rights. Alternatively, companies that are connected through a franchise agreement may form a VAT group. The VAT group is registered in the name of the representative member of the group, which must file the VAT returns for the group and claim refunds. 2015 IBFD 574
Taxable Persons Supplies within the group are ignored for VAT purposes. However, services exchanged between a member of the VAT group and its fixed establishments located in another Member State are treated as taxable services. The members of the group are not entitled to file VAT returns separately and they are jointly and severally liable for any VAT debts of the group. 2.1.7. Finland Group registration is available only to enterprises mainly engaged in exempt financial or insurance transactions, although the group may also include enterprises carrying on activities subject to VAT, provided that the latter enterprises are controlled by the financial and insurance companies by means of a majority of the voting rights, as described in the Bookkeeping Act. The enterprises must have a domicile or a fixed establishment in Finland. An enterprise may belong to one VAT group only. In order to be able to establish a VAT group, the members of the group must have close business, financial and administrative relations with each other. There is a special rule for owners of reindeer. Reindeer-grazing associations and owners of reindeer belonging to these associations are treated as a single taxable person. The group must file consolidated VAT returns and the members of the group are jointly and severally liable for payment of the VAT debts of the group. 2.1.8. Germany Under the doctrine of Organschaft, a legal entity (Organgesellschaft) is not considered independent if it and its decision-making process are controlled by another entity (Organträger, parent company). The financial link between Organgesellschaft and Organträger is determined in terms of the Organträger's voting rights in the Organgesellschaft, not its holding of the shares in the Organgesellschaft s capital. The Organgesellschaft is considered to be economically linked to the other members of the group if its business activities are interconnected, supplementary or adjusted to those of the other members. The parties are linked to one another from an organizational perspective if the Organträger's decisions are legally binding on the Organgesellschaft (its power to appoint or dismiss the Organgesellschaft's directors is not sufficient). Under those circumstances, the Organgesellschaft and Organträger are considered to form a single entity for VAT purposes. The Organgesellschaft must be a legal entity (GmbH or AG 9 ), not a partnership ( OHG or KG 10 ). The Organträger may be a natural or legal taxable person or taxable association. It may even be a non-resident 9. Gesellschaft mit beschränkter Haftung or Aktiengesellschaft. 10. Offene Handelsgesellschaft or Kommanditgesellschaft. 575 2015 IBFD
VAT Options Exercised by the Member States (situation on 1 January 2015) entity. However, in that case, the effects of the Organschaft are limited to transactions between the resident Organgesellschaften and the German fixed establishment(s) of the non-resident entity, if any. The Organschaft comes automatically into effect when the criteria of relatedness are met. It is not possible to opt for group registration. The members of the group are not entitled to file VAT returns separately. They are jointly and severally liable for payment of the VAT debts of the group. 2.1.9. Hungary Resident taxable entities and fixed establishments of non-resident taxable entities closely linked to one another in financial, economic and organization respect are entitled to opt for group registration. Those conditions are deemed to be fulfilled if the members of the group are controlled by a resident or non-resident holding company that holds at least 50% of the shares or voting rights in the other members. The group does not necessarily include all closely related entities. Transactions between the members of the group are considered to be outside the scope of VAT. The tax authorities may refuse any member that has tax arrears exceeding HUF 6 million (EUR 20,100) to be included in the group. The members of the group are not entitled to file VAT returns separately. Not only the members of the group but also entities connected with them are jointly and severally liable for payment of the VAT debts of the group, even if the connected parties do not form part of the group. 2.1.10. Ireland Where the Revenue Commissioners are satisfied that two or more persons established in Ireland are closely bound by financial, economic and organizational links and that it would be expedient in the interest of the efficient administration of the tax, they may deem, on application or otherwise, the activities relating to such persons to be carried on by any one of the persons. The members of the group are not entitled to file VAT returns separately. However, they must file separate recapitulative statements (see 11.4.). Transactions between the members of the group are disregarded for VAT purposes, with the exception of supplies of immovable goods. The members of the group are jointly and severally liable for payment of the VAT debts of the group. 2015 IBFD 576
Taxable Persons 2.1.11. Latvia Companies and fixed establishments of non-resident companies that, under the criteria laid down by the Law on Business Groups, form part of the same commercial group can apply for group registration on the condition that, for the 12- month period preceding the date of application, the turnover of one of the members of the group was at least EUR 355,700. The members of the VAT group must conclude a contract establishing the VAT group and designating the member that is authorized to represent the group. The members of the group must actually be located at their statutory address. The members of the group are not entitled to file their (periodic and annual) VAT returns separately. However, they must separately file other reports, such as recapitulative statements (see 11.4.). The members of the group are jointly and severally liable for payment of the VAT debts of the group. 2.1.12. Netherlands Where two or more persons established or having a fixed establishment in the Netherlands are closely bound to one another by financial, economic and organizational links, those persons are treated as a single taxable person for VAT purposes at their own request or on the initiative of the tax administration. Financial links exist if more than 50% of the shares of the members are directly or indirectly held by the same person(s). Organizational links exist if the members are under common management or where the management of one member is actually subordinate to that of another. Economic links exist where the activities of the members are mainly aimed at achieving the same economic goal or carried out for the benefit of the other members. Only taxable persons can form part of a VAT group but the tax authorities do not exclude pure holding companies if they actually control the decision-making process of the commercial group. Under certain conditions, also foundations that qualify as taxable persons can form part of a VAT group. If they wish, the members of the group may file VAT returns separately. They are jointly and severally liable for payment of the VAT debts of the group. 2.1.13. Slovak Republic Taxable persons established in the Slovak Republic, including fixed establishments of non-resident taxable persons, can form a tax group, provided that they are connected by financial, organizational and economic links. Taxable persons can only be a member of a single VAT group. The members of the group are treated as a single taxable person and act under a single VAT identification number. Transactions between the members of the group are not subject to VAT. 577 2015 IBFD