VAT Group Deep Dive

The idea of a VAT group was originally intended to simplify things and provide relief: two or more closely-connected companies would be considered as one entrepreneur so that services between the different parts of the VAT group would not be subject to VAT. This meant that companies that outsource a functional area to an independent company can be treated in the same way as companies that run this functional area within the company as a department.

Important to note here is that if the conditions of a VAT group are met, there are legal consequences  - even if this was unintended or the company was unaware that the criteria of a VAT group had been met. Whether the German definition is at all compatible with the requirements of Art. 11 of the VAT Directive is disputed.

However, aside from this very fundamental question, a VAT group also causes problems because the integration requirements currently applicable under German law (financial, organisational, and economic integration) are often extremely difficult to assess and monitor. A seemingly insignificant change in management can nullify the organisational integration - or create one even though this was not desired.  Mistakes here can have fatal consequences and entail immense effort to rectify the situation. 

The VAT Group Deep Dive could involve the following steps (adaptations to individual needs are of course possible):

  1. Determine the corporate legal structures including all the participation relationships in Germany and abroad to determine the financial integration
  2. Determine the (potential) head of the VAT group
  3. Examine the entrepreneurial status of all parties involved, including all remunerated services
  4. Prepare a list of the management bodies and their capacities in all the companies to determine the organisational integration
  5. Assess the respective supply relationships of the parties involved and determine whether they are to be classified as "more than merely insignificant" in the sense of economic integration
  6. Check whether advantageous arguments arise from a current European law perspective that can be asserted vis-à-vis the tax office
  7. As far as necessary: determine the simplest way to correct those invoices needing correction in the specific case (e.g., collective corrections)
  8. As far as necessary: Correct the already submitted preliminary VAT returns and VAT declarations. We advise you on the most practical procedure (if necessary, also taking into consideration aspects of criminal tax law) and possible coordination with the tax office(s) concerned. An assignment with a deferral of payment may be considered to avoid a cash-out.

You will receive a recommendation from us on how to monitor the VAT group requirements in the future.

Is our VAT Group Deep Dive the right tool for you?

  • Your company has complex structures and nested shareholdings – possibly across borders.
  • Not all companies in the group are VAT entrepreneurs.
  • The governing bodies have changed, or such a change is imminent.
  • The supply relationships between the parts of the group change are only minor or atypical (e.g., granting loans by leaving dividends).
  • You have already recognised that a VAT group exists which has not been observed so far, or that a VAT group was wrongly assumed, and are looking for the "most painless" way of correction.
  • You would like to benefit from the advantages of the VAT group in the future and fulfil the requirements as legally secure as possible, or you have reasons to dissolve the VAT group relationship.

This is how you benefit from our VAT Group Deep Dive  

  • As far as the correction effort is concerned, the unrecognised or wrongly assumed VAT group is one of the worst-case scenarios to be assumed. If the prerequisites are checked at an early stage and continuously monitored, you will save yourself a lot of time and trouble.
  • If the mistake has already occurred, we will guide you through the jungle of corrections.
  • Having an efficient process safeguards your customer relationships, which may otherwise suffer due to necessary invoice corrections.
  • Developments at the EU level mean that this issue is currently in a state of flux. Depending on the case, you may be able to use this dynamic to your benefit.

What does the tax group deep dive cost?

The effort required depends very much on the number of companies involved, the dynamics in the management bodies, the complexity of the supply relationships and, last but not least, the period of time to be examined. As soon as we have gained an initial overview, we will be happy to prepare an individual estimate for you. 

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