VAT group regime available in Luxembourg

The Law of 6 August 2018 implements the Value Added Tax (“VAT”) group regime in Luxembourg (the “VAT Group”). The Law introduces a new Article 60ter in the Luxembourg VAT law¹ in accordance with Directive 2006/112/EU. This comes in response to the recent judgment of the European Union’s Court of Justice which has restricted the scope of the VAT exemption applicable to services provided by independent groups of persons (“IGP”).

The main advantage of this regime is that all members of a VAT Group will be considered as one single taxable person for VAT purposes so that supplies between group members will be disregarded for VAT purposes.

This feature makes the VAT group attractive for financial and insurance groups using the former IGP regime but also generally for groups performing VAT-exempt supplies without a (or with limited) VAT recovery right in Luxembourg (e.g. in the private equity, real estate, asset management sectors) or groups which aim at improving their cash-flow.

The new VAT Group is an optional regime that has to be maintained for at least 2 calendar years. It is available to legal entities and permanent establishments of foreign companies (i.e. Luxembourg branches of foreign based head-offices) that are resident in Luxembourg and have financial, economic and organisational links.

In particular:

• The financial link needs to be established via a shared ownership structure² , to be certified by a statutory auditor (réviseur d’entreprises agréé) at the start of the VAT Group and subsequently on a yearly basis;
• The economic link is an activity-based criterion: the entities of the VAT Group need to either exercise the same core business or have complementary activities, or their activities should benefit other members of the VAT Group and
• The organisational link is satisfied when the VAT Group members operate under common controlling structures.

If a group of entities decides to opt for the VAT Group regime, all group members need to be part of the VAT Group, unless a specific group member expressly decides to opt out, which is possible only if:

• The group member deciding to opt out is not structurally interposed between the economic circuit of two other group members; and
• The opt-out does not result or potentially result in undue VAT savings of the VAT group or of the entity choosing to opt out of the VAT group that would not have been achieved if the entity choosing to opt out had not done so.

Furthermore, an entity can be a member of only one VAT Group.

Compliance obligations

The VAT Group, once constituted, will have one representative, which will, in principle, be the controlling entity or by default the entity with the highest turnover. It is possible for a VAT Group to designate another representative out of its members, provided that such a member is in a better position to represent the VAT Group.

The VAT Group should file a single VAT return. Compliance responsibilities will primarily rest with the VAT Group’s representative. However, all members of the VAT Group are jointly and severally liable for any VAT debt.

The VAT Group will be regarded as a single taxable person for VAT purposes with its own VAT number. Furthermore, each group member should receive an auxiliary VAT number for its transactions with third parties.

Whilst transactions between VAT Group members will be disregarded for VAT purposes, a detailed description of said transactions will have to be enclosed with the annual VAT return of the VAT Group.

The creation of a VAT Group would thus imply the following:

• the use of a single VAT number in any correspondence with the indirect tax authorities;
• the filing of a single VAT return for the VAT Group; and
• a joint and several liability of each VAT Group member with respect to the VAT amount due.