TMF Italy's Daniele Raimondi summarises developments and explains the difference between VAT groups and group VAT settlements.
Italy introduced a new VAT development in its 2017 Budget Law (Law 232/2016), borrowing from the regulations set forth in Art. 11 of Directive 2006/112/EC. The new legislation introduces the Title V-bis of Presidential Decree 633/72, regulating the institution of VAT groups; in essence, a group of taxable persons can act in the same way as a single person, but only if certain requirements are met.
The VAT Group is an alternative to, and should not be confused with, the existing group VAT settlement (see Art. 73, para. 3 of Presidential Decree 633/72); in contrast to the new legislation, the older group VAT settlement stipulates that some VAT requirements, including filing returns and payment, may be met by a parent company instead of individual subsidiaries.
Note, though, that the 2017 Budget Law also includes measures on group VAT settlement, amending and supplementing relevant regulations.
Following we summarise the developments and explain the difference between VAT groups and group VAT settlements. Our team in Italy can explain further if needed; please get in touch.
What makes a VAT group?
Title V-bis of Presidential Decree 633/72 allows a group of taxable persons residing in Italy to operate as one taxable person with a single VAT number. To qualify, the group must meet the following stipulations:
- They must be carrying out business, artistic or professional activities
- They must have financial links, which exist if, from 1 July of the previous year until the year in which the option is exercised, there is a direct or indirect relationship of control between the interested persons or;
- They must have economic links, which exist if the interested persons carry out the same core business or a business that is complementary to the core business or;
- They must have organisational links.
Note the activities at point one exclude non-commercial entities not carrying out activities relevant for VAT purposes, the foreign permanent establishments of persons established in Italy, persons in ordinary liquidation, and persons subject to bankruptcy proceedings.
VAT group regulations will enter into force on 1 January 2018 after consultation with the European VAT Committee, and will be applied through a binding option for a period of three years (automatically renewable). The group representative must exercise the option by filing a statement containing basic information such as details of the members of the group, how they fulfill requirements of the rules, etc.
If the VAT group is optioned between 1 January and 30 September 2018, it will take effect on 1 January 2019; if it’s between 1 October and 31 December 2018, it will take effect on 1 January 2020.
If the financial, economic or organisational links cease to exist, the VAT group will be disbanded. In this event, the group representative must send the relevant notice to the Italian Revenue Agency within 30 days of the link ending.
After the option is exercised, all transactions carried out between the members of the group will not be relevant for VAT purposes, whether these involve services or the sale of goods. Conversely, active and passive transactions with entities outside the group will follow ordinary VAT rules, identifying the VAT group as a single entity.
In the event that the VAT group is in a position of surplus tax credit, it will not be possible to transfer the surplus internally to a member of the group; a refund may only be requested for this credit (even if the conditions pursuant to Art. 30 of Presidential Decree 633/1972 do not exist) or it may be used for offsetting.
How does this differ from group VAT settlement?
The rules regarding group VAT settlement are contained in Ministerial Decree 13/12/1979. Article 2 of this decree regards limited liability companies and limited partnerships with share capital in which the parent company holds more than 50% of the shares or units (excluding shares without voting rights) as belonging to the same group from 1 July (see the 2017 Budget Law).
The group VAT settlement scheme allows each company within the same group of companies to offset receivables and payables arising from its regular periodic VAT settlements, as well as from the year-end adjustment. This results in a single credit or debit position obtained through the sum of payables and receivables arising from the settlements of all the companies within the group); the parent company is required to report this position in an appropriate summary register by the deadline for periodic settlements.
Group VAT settlement is particularly advantageous in all scenarios where entities within the same group have different VAT positions, thus avoiding the payment of VAT by those entities in the group that have a negative settlement position and an accumulation of VAT credit for entities that, conversely, show a positive settlement balance.
Further VAT developments in Italy
The Budget Law rewrote paragraph 3 of Art. 73 of Presidential Decree 633/72, providing for new group VAT settlement rules which have applied since 1 January 2017.
The amendments introduced relate to several aspects of the scheme in question, and can be summarised as follows:
- The range of entities allowed to take part in group VAT settlement has been extended to include partnerships (as both parent companies and subsidiaries).
- Membership of the scheme will be shown directly in the annual VAT return (and no longer by filing Form IVA 26), to be filed in the calendar year from which the option is to be exercised, which will remain valid until withdrawal (and no longer for only one year).
- The parent company is no longer required to submit the VAT returns of the subsidiaries, and the latter are no longer required to record in their VAT records, when the periodic payment is made, that the balance has been transferred to the parent company.
- The control requirement is fulfilled if more than 50% of the shares or units of the subsidiary are held from 1 July of the calendar year preceding that in which the option is exercised (and no longer from the start of the previous calendar year).