The European Commission's plans to tackle cross-border tax evasion by harmonising rules on VAT grouping have split opinions among Europe's tax professionals.
Mark Delaney, head of UK VAT at Baker & McKenzie, said the proposals which aim to harmonise EU VAT grouping rules are something that taxpayers should not be worrying about at the moment.
"This document is very discursive. It is really just kicking off the debate and should have been clearer as to what the commission actually wants to achieve," said Delaney.
The Commission released a communication earlier this month that hopes to promote discussions on how EU VAT grouping rules should be harmonised and implemented.
The communication sets out the Commission's view on how the provisions of article 11 of the EU VAT directive should be translated into practical arrangements while respecting the principles of the present VAT system.
The communication outlined a number of proposals including the statement that a group is itself a taxable person subject to the same rights and obligations as any other taxable person. It also explained that only companies or fixed establishments physically present in a member state that has introduced the grouping scheme may be members of a VAT group.
However, one professional believes the proposals are already having an impact on their work.
"As a VAT professional, these proposals are a significant irritance," said Alan Sinyor, head of VAT at law firm Berwin Leighton Paisner in the UK. "This is something we can't afford to ignore."
The proposals will have varying impacts in different member states. Nine states do not have grouping rules and a further 16 have them but do not meet all the proposed requirements.
One country that already has grouping provisions is Germany.
Under German law, there is no formal application procedure for VAT groups. Instead, membership in a VAT group occurs automatically at the moment when the integration conditions are fulfilled and also ceases automatically as soon as this is no longer the case. The new proposals will rectify this.
This has pleased one tax practitioner. "Under the current German system we do not have very clear guidance on VAT groupings and there is a lot of ambiguity. So the proposals could be a good thing," said Robert Praetzler, tax partner at Ernst & Young in Germany.
One country that has so far declined to adopt grouping rules is Luxembourg. "The authorities have been reluctant to welcome VAT grouping because of the potential abuses that could go on," said Laurent Grencon, partner of Atoz, Taxand. "In other countries, advisers have been very good at misusing the rules to find loopholes and find VAT savings beyond the objective of the directive and this worries the authorities."
Laszlo Kovacs, commissioner responsible for taxation and customs union, said after the release of the communication: "The practice has shown that the VAT grouping scheme although being a simplification measure for operators, could lead to tax evasion. For that reason the commissions proposes clear guidelines on how to apply in practice this scheme."
The VAT grouping option has been available to member states since the 1970s. There are now 16 member states which have introduced VAT grouping schemes into their national legislation.
