Important Changes to Dutch VAT Grouping Rules Are Coming in 2024

Internationally operating companies often have fixed establishments in other countries. Because fixed establishments are considered to form one legal entity with their head office, transactions between them are generally outside the scope of value-added tax.

The Netherlands will change its policy on groups starting Jan. 1. Foreign establishments can’t be included in a Dutch VAT group from this date if they belong to a VAT group of another EU country.

This means that transactions within one legal entity that currently are outside the scope of VAT will become subject to VAT if certain conditions are met—for example, if a head office or its fixed establishment belong to a VAT group within the EU.

From 2024, this important change is being introduced to the Dutch Decree on Fixed Establishment. Decree No. 2022-13545 of July 1, 2022, which amends Decree No. 2020-25513 of Dec. 17, 2020, was published in Official Gazette No. 16197 (in Dutch only).

The changes in the new decree bring it in line with the decisions of the European Court of Justice in the Skandia and Danske Bank cases. In its decisions in these cases the ECJ held that if a fixed establishment and/or head office are part of the VAT group in its country of establishment they should be treated as separate taxable persons for VAT purposes.

Consequently, transactions between a head office and its fixed establishment are within the scope of VAT if either the head office or the fixed establishment or both is or are a member of a VAT group.

The amended decree states that supplies between a fixed establishment and a head office remain outside the scope of VAT if neither is part of a VAT group of one of the EU member states.

Transactions between a head office and its branch or fixed establishment will no longer be outside of the scope of VAT after Jan.1 if either a head office or its branch/fixed establishment or both belong to a VAT group within the EU.

If a head office or its fixed establishments aren’t part of a VAT group of any of the EU member states, transactions between them will remain outside the scope of VAT.

Practical Implications

The changes will have major consequences for business structures with cross-border transactions between a head office and a fixed establishment, and more broadly within one legal entity, in cases where EU VAT groups are involved.

If any of those establishments belong to a VAT group within the EU, they will be treated as separate taxable persons under the new Dutch rules. The transactions between them will fall within the scope of VAT after Jan. 1.

As a result, a head office or fixed establishment may become liable for (non-deductible) VAT—the so-called reverse charge applies—if a fixed establishment or head office in another EU country provides any services or re-charges the costs to a Dutch head office or fixed establishment engaged in a VAT exempt business.

This development has major implications for the financial sector or any other sector involving VAT exempt supplies, because it means that the (reverse charge) VAT may be applicable on cross-border supplies of services between a head office and its fixed establishment. For partly exempt businesses it means that the input VAT that becomes payable is partly not deductible.

However, fully taxable businesses are also affected if they are in scope of the changes—for example, due to new compliance obligations.

Planning Points for Businesses

Affected businesses should begin to assess the impact of these developments by mapping transactions that take place between various establishments of the same legal entity and identifying the VAT implications of the changes to these transactions. New reporting and compliance obligations may follow. Updates to enterprise resource planning systems may be required.

For exempt or partly exempt businesses, it means that non-deductible VAT may become due on re-charges within one legal entity. Other businesses may also be affected if they have structures described above.

It may be possible to modify the group structure to optimize the VAT treatment, for example, by having services purchased directly by a head office or its fixed establishments, or partly by the head office and partly by fixed establishments.

If the place of supply is in another EU member state that doesn’t yet apply the principles of Skandia and Danske Bank, then it is possible that no VAT is due. However, most EU countries have already taken, or are currently taking, action to bring their legislation in line with the Skandia and Danske Bank decisions. It’s therefore important to check the VAT rules of other EU countries involved.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Aiki Kuldkepp is senior manager, tax, with Grant Thornton Netherlands.

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