VAT groups: infringement proceedings

The issue

On 24 June 2010 the European Commission commenced infringement proceedings against the UK and certain other countries alleging that their VAT grouping rules do not comply with EU legislation. The specific issue identified with the UK rules (and those in the Netherlands Ireland Finland Denmark and the Czech Republic) is that they allow the inclusion of non-taxable persons in VAT groups.

The purpose of VAT grouping

The Commission’s view is that VAT groups have been designed ‘for the purposes of administrative simplification or combating abusive practices’. Where VAT groups include non-taxable persons the Commission considers this to circumvent the usual criteria for those persons to be treated as taxable persons. In a sense VAT grouping is always distortive since exempt and partially exempt traders can join fully taxable traders in a group.

Why not also include non-taxable persons? After all the directive...