The Italian “VAT Group Regime” Comes True … at Last!
The Italian legislator has finally removed the VAT legislation gap between Italy and the most part of the EU countries. According to the 2017 Italian financial law (Law n. 232 – 12/11/2016) VAT subjects (companies and other entities) sharing specific economic, financial and organizational interests, could be admitted to access the above mentioned new VAT regime.
The new Italian VAT group regime arise from a specific option rendered by the EU legislation since 1979. As a matter of fact, this last gives any EU country member the chance to adopt a special VAT regime in order to regulate any VAT relevant commercial transaction involving companies or entities strictly mutually connected by means of financial, economic and organizational ties.
According to the aforesaid EU Legislation all three requirements (financial, economic and organizational ties) must be simultaneously met in order to enable a company the access to the special VAT group regime. In detail, according to the interpretation offered by the European Commission:
- a financial tie is met when a Company owns more than 50% of the share capital of another company (i.e. exerting legal control) or when it affects another company because of a relevant contract as a franchising agreement;
- an economic tie is met when all companies involved run the same business and/or belong to the same sectors and/or their activities are mutually complementary or codependent;
- an organizational tie is met when all companies are jointly submitted – even partially - to a common corporate structure.
The Italian VAT Group regime lays on an “all-in all-out” principle. It is so-called because of the approach fixed by the Italian legislator. Stated that all participant companies must be duly linked through financial, economic and organizational ties, when they decide to participate in a VAT group all linked companies must join the regime according to the principle “all-in all-out”. No exceptions or exemption are allowed.
Due to the establishment of a VAT group, all company members lose their own individual VAT relevance in favor of a collective and common VAT relevance. Therefore, the VAT group acquires a specific VAT status toward the “rest of the world” VAT subjects, i.e. all those who lie out of the VAT Group boundary. It leads to the following conclusions:
- All good purchases or sales and all services acquired or rendered within the VAT Group boundary are considered as “no VAT relevant operation”. It means that any commercial transaction among companies belonging to the same VAT group are always irrelevant from a VAT point of view;
- Otherwise, any good purchase or service acquired by whichever company belonging to the VAT Group “out of the VAT Group boundary” is regularly invoiced by the suppliers/vendors to the VAT group (not to the single company);
- Therefore, all good sales or services rendered by whichever company belonging to the VAT Group in favor of a subject placed “out of the VAT Group boundary” are duly invoiced only by the VAT Group to the buyer/customer;
- Any obligation and right provided by the VAT legislation is duly carried out by the VAT group itself, this last is raised to the role of sole subject entitled to deal with the Tax Office with reference to VAT compliance and in case of any VAT auditing and assessment.
The VAT Group Regime option is carried out by the Holding company through the specific template included in the VAT statement. The option itself spreads its effects out by the beginning of the VAT fiscal year towards all companies included in the VAT Group.
Our legal and tax firm, thanks to the experience accrued on the matter over last years is at your complete disposal in order to take care of your VAT company needs with skilled legal and tax experts. So do not hesitate to contact us, we are ready to listen and ponder confidentially your case aimed to find jointly your own best solution.
Stefano Lecchi, is specialized in tax litigation, extraordinary taxation and to groups of Insurance; he is engaged as associate and team leader for more than ten years.