VAT Grouping – Where are we so far?

In the 2018 Budget Speech, the Minister of Finance had announced the introduction of the VAT Grouping Scheme into local legislation, whereby two or more persons would have the option to be treated as a single taxable person for VAT purposes.

As part of the implementation process, Malta has so far presented the proposed legislative text, transposing Article 11 of Council Directive 2006/112/EC to the VAT committee for consultation, as published in working paper 942 by the European commission. The regulations are to be introduced by way of a legal notice in the coming days and are expected to come into force as from 1 June 2018.

As part of the consultation process the commission has reviewed the proposed rules and requested the Maltese delegation to provide clarification on the following points:

  • Territorial scope of the VAT grouping scheme – as per the draft consultation, Malta wants to consider the whole entity (including foreign establishments), to form part of the Maltese VAT group, in cases of entities having either a head office or branch in Malta. The commission commented that this seems to be inconsistent with the EU guidelines, mainly with the outcome of the Skandia CJEU case;
  • Limited application of the VAT grouping scheme – the proposed Maltese legislative text state, that at least one of the applicants shall be a taxable person who is licensed or recognised under regulations governing specific sectors such as gaming and financial services, due to the fact that such sectors are directly or indirectly under regulatory supervision in Malta. The commission has asked the Maltese delegation to clarify on such restrictions, on the basis that other sectors can also be subject to regulatory supervision;
  • Financial , economic and organisational links – according to the proposed rules, it is being assumed that if a financial link exists between VAT Group members, organisational links would also be present. The commission has contended that such a presumption seems to be too general and that all the 3 conditions should be satisfied simultaneously in line with Article 11 of the VAT Directive;
  • Anti-avoidance measures – the commission has asked how the anti-abuse provisions inserted in the draft legal notice are going to work exactly in practice and whether they are intended to specific cases of abuse.

So far, the clarifications by the Maltese delegation as requested by the commission, together with any conclusions reached, have not yet been published.   

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