The European Commission is conducting consultations on so-called VAT groups. According to the VAT Directive 2006/112/EC, Member States may consider several companies established in the same Member State, which are legally independent from each other but have close financial, economic and organisational links, as a single taxable person. Although VAT groups already exist in some countries, Poland is only now at the stage of introducing regulations in this area.
Assumptions on VAT groups at Community level
Under the new rules, a VAT group can be formed by several independent companies established in the same Member State, which are financially, economically or organisationally linked to each other. Advantageous solutions for grouping taxable persons include:
- the formation of a single taxpayer for VAT by several companies and appearing as one taxpayer before the tax administration authorities and contractors from outside the group;
- the presumption that the supply of goods and services between companies in a group does not constitute a taxable activity;
- the common right of deduction.
Each Member State may separately introduce additional conditions governing the operation of VAT groups. They should always be consulted with the VAT Committee at the European Commission in order to avoid any discrimination between the entities concerned.
VAT groups in Poland – assumptions
According to the Ministry of Finance draft, VAT groups could be used by companies that are income tax CIT taxpayers. It applies to companies that meet the following conditions:
- the capital group consists exclusively of limited liability companies or joint-stock companies with their registered office in Poland;
- the share capital of each of the companies to join the group is not less than PLN 500,000;
- the annual share of the group’s turnover is at least 2%;
- the parent company holds at least 75% of the shares in the companies of the Group;
- the subsidiaries do not hold shares in other group companies.
Draft Polish VAT Group with negative opinion of the European Commission
The European Commission’s VAT Committee issued a negative opinion on some assumptions of the Polish Ministry of Finance’s draft. It was pointed out that the draft amendment is not in line with the assumptions of the VAT groups at Community level. On the other hand, the strictness of the planned provisions will mean that only a few companies will be able to benefit from this solution.
In view of this, the Ministry of Finance is currently working on a possible easing of the conditions for links between companies that are to form a VAT group. Among other things, changes related to the reduction of the share capital of the individual companies are being analysed.
When will the VAT group regulations come into force?
Poland had planned to implement the amendments regarding VAT groups at the beginning of 2021. However, this deadline may be extended. For some taxpayers, taking advantage of the new regulations may prove to be a very attractive form of corporate governance. As the legislative work progresses, we will provide you with more information on our blog about VAT groups available to you. We encourage you to follow the next posts where we will set out our observations on the progress of the consultations and highlight the opportunities and threats arising from the new law.
Aleksandra Philips, LL.B., VAT Specialist