Ireland in the dock over VAT rules

NON-taxable persons and entities such as holding companies should not be included in VAT groupings, the European Commission says.

Currently companies and their subsidiaries do not have to pay VAT in transactions between themselves.

But Ireland allows non-VATable entities to be included in such groups, which according to the European Commission is contrary to EU legislation on VAT grouping rules.

As a result they have referred the issue to the EU’s Court of Justice after Ireland failed to change its rules following warnings.

A statement from the Commission said that VAT grouping is allowed to simplify administration under the VAT Directive, which gives member states the option to treat those who are legally independent but closely bound to one another by financial, economic and organisational links as one single taxable person.

In all seven member states are being referred to the court on VAT grouping rule issues.

The Netherlands, Finland, Britain, the Czech Republic and Denmark are accused of breaching the same rules as Ireland.

Proceedings against Sweden and Finland are being taken because they limit the VAT grouping system to financial and insurances services contrary to the rules.