VAT Grouping Regime in Italy Clarified

The Italian government  published a Decree clarifying the rules on  VAT grouping.

What is VAT grouping?

The VAT group regime normally allows a simplification where separate legal entities with financial and organizational links may benefit from simplified reporting and (in most countries) intra-group transactions that are not subject to VAT. The level of simplification changes from one country to another.

Businesses opting for the VAT group regime have to meet the requirement to be linked financially, economically and organisationally. A financial link exists when there is a direct or indirect control between the entities. When the business activities of the different entities are the same or are substantial for the business activities of another member, in this case an economic link is deemed to exist.  Whenever different entities are subject to a jointly coordination under the Italian Civil Code, it will be understood as an organisational link.

Changes in Italian VAT groups

In order to apply for the VAT grouping regime, the link between the entities has to be in place at the moment when the application is submitted , at least from 1 July of the year before the VAT grouping becomes effective. Once the VAT group regime has been granted, the option is binding for a period of three years, which will be renewed for each subsequent year if not revoked.

The implementation of a VAT group regime is not mandatory for the Member States of the European Union. This leads to a variety of interpretations of this scheme, having a mandatory VAT group regime in Germany for cases where one entity owns at least 50% directly or indirectly by the same company. Spain has not implemented a VAT group regime as such, i.e. every entity has their own VAT obligations. Nevertheless, there does exist the possibility to consolidate the VAT due in one single payment.