Amendment to the Dutch VAT Group | a territorial limitation
The Dutch Secretary of State has amended the resolution in which the VAT Group could include a cross-border Permanent Establishment. As a result there will be VAT charges on intra-group transactions between VAT Fiscal unities and foreign enterprises or foreign Permanent Establishments starting January 1st 2024.
VAT regulations until January 1st 2024
Until January 1st 2024 there are deemed to be no intra-group transactions from a Dutch VAT perspective between an enterprise and its Permanent Establishments. This is deemed logical, as the enterprise and its Permanent Establishments are considered to be one and the same.
This means that at present, a foreign enterprise can be in a VAT Group with its Dutch based Permanent Establishment, as they are considered as one enterprise.
The reason for the amendment
The European Court of Justice ruled in the Skandia and Danske Bank cases that transactions between Permanent Establishments of the same enterprise should be charged with VAT if at least one of these Permanent Establishments is part of the VAT Group. In short, the VAT Group is considered as a separate taxpayer that is not connected with the Enterprise or its Permanent Establishments. This applies to both the situation in which a foreign enterprise is in a foreign VAT Group and the situation in which a Dutch based Permanent Establishment is in a VAT Group.
Until the amendment enters into force, the Dutch Tax Authorities do not act in accordance with the European Court of Justice’s rulings.
VAT regulations as of January 1st 2024
The new regulations will enter into force on January 1st 2024. As of this date, there will be an exception to the rule that transactions between enterprises and their Permanent Establishments are not charged with VAT; intra-group transactions between VAT Fiscal unities and foreign enterprises or foreign Permanent Establishments will be charged with VAT.
The Dutch Secretary of State has deliberately decided not to apply the new regulation at once, so all companies are given enough time to make any necessary adjustments.
What does this amendment mean for your VAT position?
If your enterprise has a Permanent Establishment and applies a VAT Group regime within the EU, this amendment affects your VAT position. This is even more so if your enterprise is limited in deducting paid VAT. As the intra-group transactions are charged with VAT that can only be deducted up to a certain limit, this can result in an additional financial burden within the transaction chain.
It is of importance to assess your corporate structure on VAT structure risks well before the amendment is in effect. This means assessing to what extent Permanent Establishments, VAT Groups and VAT deduction limitations result in a disadvantage. However, it is also important to note that for Dutch enterprises an advantage could be obtained if the enterprise carries out its transactions through foreign Permanent Establishments.
Would you like to know more about the VAT resolution and how it affects your business? Or do you need help with other VAT regulations? Our colleagues from the VAT Division can advise and assist you. Call Anne Kin, international tax advisor, at +31 (0)13 591 51 25 or send Anne an e-mail.