February saw the Supreme Court of the Netherlands rule in a case concerning the conditions for forming a VAT group in the Netherlands. This ruling could be beneficial, as it includes further clarification/guidance on what has to be present in order to meet the condition of being organisationally intertwined.
Background
In the Netherlands, entities form a VAT group by operation of law from the moment the following requirements have been met:
- Organisationally intertwined
- Financially intertwined
- Economically intertwined
In principle, entities are deemed to be organisationally intertwined when the persons concerned within the group are under the joint management and directions of one or more of them. However, the Supreme Court of the Netherlands has now ruled that this condition can also be met if the entities involved jointly decide on the organisational policy together as a group.
In the case at hand, one of the entities concerned carried out cleaning services for one of the other parties in the group. These services were complementary to the main activities of the recipient of the cleaning services. The Supreme Court decided that the parties met the condition of being organisationally intertwined as the party for whom the cleaning services were being carried out had strategic power and control over the cleaning services. It is not required that the involved entities are subject to a relationship of subordination to another entity in the group in order to meet this condition.
Comments
Although the Supreme Court decision relates to quite specific facts and circumstances, we are of the opinion that companies which did not meet the set conditions to be a VAT group in the Netherlands before could benefit from the ruling as the condition to be organisationally intertwined has a broader interpretation.
While before this ruling, this condition could only be met when the entities concerned have (effectively) the same management, the condition could now in principle also be met if the entities concerned jointly decide on the policy of the group of entities.
Due to this additional possibility, companies which are in a situation where it could be beneficial to form a VAT group in the Netherlands, could review their current position and examine whether or not they could make use of this Supreme Court decision.
In our view, it could be mainly beneficial for companies in the Netherlands with (partly) VAT-exempt activities, which incur costs including VAT from other entities in the group. Because transactions between entities within a VAT group in the Netherlands are not visible for VAT purposes, the entities concerned will no longer have to charge and/or incur VAT that is non-recoverable (in full). Depending on the circumstances, this may result in substantial costs savings.
Should you have further questions or would like assistance in this respect, please feel free to contact us.
Read the WTS Global VAT Newsletter here.
