Italy: VAT group option from 2019

On September 19, 2018 the Italian Tax Authorities approved the form “AGI/1”, to be used to opt for the Italian VAT group as from 2019 by November 15, 2018: The option is binding for a three-year period and is automatically renewed for each subsequent year.

The provision was released according to the Ministerial Decree issued on April 6, 2018, which contains the implementing details of the Italian VAT group, introduced by the Budget Law 2017 (Law No. 232/2016).

This Law was subsequently modified by the Budget Law 2018 (Law No. 205/2017), in order to directly transpose (into Italian law) the outcome of the Court of Justice of the European Union’s (ECJ) decision in the Skandia Case (Case C-7/13), providing for the transactions between a branch/main establishment belonging to an Italian or EU VAT group and its Italian or foreign main establishment/branch to be deemed as carried out between a VAT group and a third party, and so to be relevant for VAT purposes (being the taxable basis, by the way, also subject to specific rules).

According to the Italian VAT group provisions, taxable persons that (i) are established in Italy (so also including Italian branches of foreign entities) and that (ii) since July 1 of the previous year are closely linked to each other due to specific “financial”, “economic” and “organizational” connections (i.e., that form a group) can opt for a VAT group starting from January 1 of the relevant year, according to an “all-in, all-out” principle (no cherry picking within the group).

Moreover, as a general rule, if the “financial” link is met (meaning that two or more taxable persons established in Italy are directly or indirectly linked by controlling interests, or are directly or indirectly controlled by the same entity), it is assumed that the “economic” and “organizational” links are met as well, thus making it possible to opt for the VAT group.

Once set up, the VAT group is treated as a single taxable person, liable for all the VAT obligations and able to exercise all the rights pertaining to its participants; as a consequence, it (i) has a sole VAT identification number, (ii) periodically determines (as a group) its VAT position (debit or credit), (iii) files the VAT returns and (iv) pays any VAT due to the Tax Authorities (or asks for a VAT refund).

The supplies of goods and the services rendered among the participants of a VAT group are outside the scope of VAT, while transactions between any of the participants and a third party are deemed to be carried out between the VAT group and the third party – as a consequence, the VAT group option is expected to be chosen mainly by financial and insurance groups, which have limitations on input VAT recovery.