Italy - New Italian VAT Group Regime

New provisions about VAT Groups will come into force in Italy starting from January the 1st 2019. For its establishment a declaration of incorporation has to be submitted electronically using the special form available on the website of the Revenue Agency at the following address: https://www.agenziaentrate.gov.it/wps/content/Nsilib/Nsi/Schede/ Instances / Stamina + Group + VAT / Model + Stamina + Group + VAT /?page = schedeistanze. 

If the declaration is submitted:

  • from January the 1st to September the 30th, it shall be effective starting from the year following the one in which it has been submitted;
  • from October the 1st to December the 31st, it shall be effective from the second year following the one in which it has been submitted.

The first time the declaration will be effective starting from 2019 if it has been submitted no later than November the 15th 2018.

  1. Subjective requirements for the establishment of the VAT Group

A VAT Group can be set up by (i) taxable persons (non-commercial entities are therefore excluded for the non-commercial activities carried out) (ii) established in the territory of the State (the offices and permanent establishments located abroad are therefore excluded) (iii) performing business activities, art and profession (iv) subject to judicial seizure, bankruptcy proceedings, ordinary liquidation (v) united by financial, economic and organizational links.

For the establishment of the VAT Group these requirements must exist from July the 1st of the year preceding the one in which the option takes effect and their existence is required during the entire period of the Group's life as well.

1.1. The financial link 

The financial link exists, first of all, in case a company has the majority of the votes that can be exercised in the ordinary shareholders' meeting of another company. This means that the subsidiary companies must necessarily have this legal form while other non-profit entities can only join the Group as parent companies.

The financial link also exists if the companies are controlled by a subject resident in a foreign country, provided that there is an agreement ensuring the exchange of information (white list countries or agreement to avoid double taxation on income). The existence of the financial link, however, is excluded if other companies established abroad are interposed in the chain that binds the resident controlled companies to the non-resident parent companies.

In case the parent company is a static holding (simply owning holdings of the group companies, without carrying out any economic activity towards third parties or subsidiary companies), it will not be allowed to join the VAT Group. A static holding cannot join the Group, not being a taxable person for VAT purposes due to lack of the objective requirement, but it will have to be considered for the purpose of verifying the financial link of the members. In this case, the Group will be made up of the subsidiaries of the static holding which, though excluded from the Group, will be the reference point for the purpose of identifying the Group itself.

1.2. The economic link

The economic link exists in the event that the participants carry out: 

  • a main activity of the same kind;
  • or complementary activities (intended as instrumental or as activities whose functionality and economic value are only present in combination);
  • or interdependent activities (intended as reciprocal activities, also just possible reciprocity – i.e. distribution franchising);
  • activities fully or substantially benefiting one of them.

1.3. The organizational link

For the existence of this type of link it is necessary the presence of the "coordination" presuming the management of the Group as if it was a single company, in compliance with the strategic guidelines provided by the parent company.

1.4. The presumption connected to the financial link

The existence of the financial link involves the presumption of existence of the other links. However, proof of the contrary is admitted by submitting a specific request to Agenzia delle Entrate.

  1. The "all in, all out" scheme

In the Italian model, the establishment of the VAT Group is optional according to the "all in, all out" scheme. This means that in case of Group establishment, all subjects bound by the constraints described above will necessarily have to take part in it.

  1. Effects of the Group establishment

A new VAT subject with its own VAT number and its own independent VIES registration will be created though this option, which automatically excludes the registration of the participants. The obligation of declaration, liquidation and tax payment and all the accounting obligations have therefore to be borne by the Group, so that the sale of goods and services rendered by a participant to an external subject is considered to be carried out by the Group and, on the contrary, the transactions carried out by an external subject in favor of a participant are considered to be carried out to the Group.

All obligations and rights concerning the transactions for which the tax becomes payable or the right to deduct can be exercised before the date of entry into the Group or after its termination shall be charged to the participating companies.

The invoices and other documents can be issued by the Group Representative or by individual participants, indicating the Group VAT number and also the fiscal code of the participant who carried out the transaction. It is therefore always necessary that the supplier is provided both with the Group VAT number and with the fiscal code of the buyer participant.

Internal transactions (sale of goods / services) carried out among participants are not relevant for VAT purposes, while the obligation to register such transactions in the accounting records other than the VAT books is still in force.

On the other hand, transactions between the parent company and one of its permanent establishments are relevant for VAT-purposes. Internal transactions are also relevant in case of separation of the activities provided that goods are involved in an activity subject to reduced or flat deduction and except for the initial assignment of goods and services to the different activities identified by the option for the separation.

 

The above information was kindly provided by Alessandro Garzon from TBS Tax Back Service srl. (Italy). If you need any further information you can contact Alessandro, email to: a.garzon@consulentipa.it.

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Disclaimer:  The information contained in the present page is general and does not constitute legal advice. Before taking any decision or action on the above information you should take the appropriate professional advice.