VAT grouping: the relevance of the territorial restriction of Article 11 of the VAT Directive

Abstract

Contrary to the Commission's view, the participation of a head office in a VAT group does not disassociate its foreign fixed establishment from the head office in order to create two distinct taxable persons, the VAT group with the head office as a member on the one hand and the fixed establishment on the other. Consequently, transfers of goods or services between a head office participating in a VAT grouping in its state of establishment and its foreign fixed establishments remain events within one taxable person. The territorial restriction of VAT groupings to companies established in the same Member State does not generally establish a difference in treatment of cross-border and purely internal situations. As regards the supply of goods between companies being closely bound to one another by economic, financial and organisational links, the exclusion of a cross-border grouping does not in principle create an additional tax burden compared to a cross-border situation, since cross-border transfers of goods within one taxable person are deemed to be supplies of goods for consideration. For the supply of services under the general rule for the place of supply, there might be a difference in treatment not in line with the free movement of establishment or the freedom to provide services. This difference in treatment can be justified on grounds of the necessity to ensure effective fiscal supervision.