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VAT Update: ECJ decision confirms VAT grouping of holding companies

AUTHOR(S): Greg Lockhart, Turlough Galvin
DATE: 15.04.2013

The European Court of Justice has confirmed the Irish practice of allowing holding companies to become members of a VAT group and benefit from the ability to recover VAT incurred by the group as a whole.

The European Court of Justice released its decision on 9 April 2013 in the European Commission v Ireland case (Case C‑85/11) in line with the previous opinion of the Advocate General published on 27 November 2012.

VAT Grouping

Many EU member states, including Ireland, permit a simplification to VAT reporting between connected taxpayers of a corporate group by means of the formation of a “VAT group” or fiscal units for VAT purposes. The administrative simplifications made possible by the formation of such a group include that supplies made between members of a VAT group are ignored for VAT purposes, and a single VAT return may be submitted by the VAT group as a whole.

One matter which has arisen recently is the admission of holding companies to VAT groups, where such holding companies would not qualify for VAT registration on a standalone basis. Membership of a VAT group can present the possibility to such holding companies that goods and services necessary for their operation may be purchased through the VAT group such that the VAT on such purchases may be recovered.

Commission v Ireland decision

The Irish Revenue Commissioners have, subject to meeting the normal relevant conditions for such VAT group membership, allowed holding companies to become members of Irish VAT groups. The European Commission sought to challenge this arrangement before the ECJ. Ireland defended it’s position before the ECJ and was supported by Denmark, the UK, Finland and the Czech Republic in such efforts.

The Advocate General’s opinion had recommended that the ECJ should declare that Ireland has been correct in permitting holding companies to be members of a VAT group. The ECJ in its decision of 9 April 2013 followed such recommendation and confirmed that Ireland was correct in its interpretation of the relevant EU Directive and dismissed the Commission’s challenge to the Irish Revenue Commissioners practice.

In practice, the Commission v Ireland decision will ensure that the Irish Revenue Commissioners may continue its practice of allowing holding companies to enter VAT groups and benefit from the VAT simplifications and recovery entitlements which arise as a result. This is a welcome confirmation of Irish practice in this area.


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