Introduction Of The Luxembourg VAT Group Regime (Bill Of Law N°7 278)

On 13 April 2018, the Luxembourg Government introduced the bill of law n°7278 before the Parliament. This bill will implement the VAT group into Luxembourg VAT law with effect from 31 July 2018.

After months of expectation, the Luxembourg Government has finally come up with a Luxembourg version of the VAT group regime. In doing so, the Luxembourg government wishes to move the shift lever of Article 11 of the Directive 2006/112/EC ("VAT Directive") which allows Member States to consider any group of persons as one single taxable person under certain conditions. While the main principle is clearly set out, Article 11 leaves room for the determination of the outline of such regime, which has led to considerable discrepancies among the Member States in its implementation and conditions.

The Luxembourg authorities were historically reluctant to implement this VAT regime, considering notably that the Independent Group of Persons ("IGP") system constituted a sufficient VAT solution for the financial and insurance sectors.

However, with recent developments at the European level as regards the scope of the IGP, the opportunity has arisen for the Luxembourg to consider an alternative.

Whereas the VAT grouping could be considered a worthy successor to the now unattractive IGP, this new Luxembourg VAT regime as foreseen in this bill of law differs from it in many respects and hardly constitutes a substitute for the IGP.

The main features of this regime in its current version can be summarised as follows:

Conditions governing the Luxembourg VAT group persons must be closely bound by financial, economic and organisational links (cumulative conditions); no limitation as regards the status of the person (i.e. VAT taxable or not), the nature and type of activities (e.g. VAT exempt or taxable / supply of services or goods); persons may only be members of one VAT group; members of a VAT group must be established within the same Member State (no cross-border VAT groups); optional regime but if opted, any persons fulfilling the conditions are in principle obliged to enter into the VAT group. Implications of the Luxembourg VAT group constitution of one single VAT taxable person with one VAT number (and auxiliary VAT numbers for the members for transactions with third parties); internal transactions between...

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