The Luxembourg Ministry of Finance announced last week that Luxembourg will introduce VAT grouping. The draft law will be submitted in the coming weeks to Parliament and the EU consultation process will be run in parallel. The date of entry into force must still be confirmed and it depends on the speed and the outcome of the legislative process. Bearing in mind the speed with which Luxembourg used to adopt new legislation, the VAT grouping provisions may already be available in autumn 2018.
On the above basis, Swiss businesses having subsidiaries in Luxembourg should undertake an assessment of the prospective VAT benefits of the VAT group in Luxembourg and the impact on the input VAT recovery position. Additionally, attention should be given to the Luxembourg companies having branches in the Member States of the European Union, which implemented the judgment of the Court of Justice of the European Union in Skandia, i.e. branches of a VAT grouped head offices are to be viewed as a separate taxable person with the consequence that any cost allocations between the VAT grouped head office and its branch are considered to be supplies for VAT purposes subject to VAT under the reverse charge. If the activity of the branch is to a greater extent exempt from VAT, the reverse charge VAT due on the cost allocations from the head office would lead to additional irrecoverable VAT. This is dependent on the way and the extent in which the Member State of the branch has implemented the Skandia provisions (e.g. Italy has recently fully implemented the Skandia judgment).
With the above in mind, it is now a good time to undertake an impact assessment (i.e. benefit of VAT grouping of the Luxembourg established companies vs the impact of this VAT grouping on the European branches (i.e. reverse charge VAT liability) because of the Skandia provisions) and explore options for the most beneficial set-up.
We are happy to advise you further on the above.
Dr. Niklaus Honauer
Partner, Indirect Taxes, Zürich
+41 58 792 59 42
Senior Manager, VAT for financial services, Zürich
+41 58 792 49 38