VAT Grouping allows for several entities to be treated as one single entity for VAT purposes. The Commission had argued that each person to be included in a VAT Group should carry on a taxable activity.  If successful in its argument this would have had a significant impact on VAT Groups which currently include holdings companies.  Such VAT Groups can currently provide goods and services within the group without accounting for VAT on such supplies (except for supplies of property).

Ireland successfully argued that the literal wording of the VAT Directive allows any person to be included in a VAT Group. This would include non-taxable persons such as holding companies and dormant companies.

The ECJ agreed with Ireland’s arguments that by allowing non-taxable persons to join VAT Groups, the objectives of the legislation of simplifying administration and combating abuse are met.  The ECJ endorsed the opinion of the Advocate General who stated that an individual taxable person can carry on activities which fall within the scope of VAT as well as activities which fall outside the scope of VAT and a VAT Group should be no different.

This is good news for existing Irish VAT Groups who now have certainty regarding their position as well as for future VAT planning.

Contributed by Sonya Manzor and Orla Maher.

Back to Legal News