Summer 2018 - Important changes in the VAT landscape

With the implementation of VAT grouping and transfer-pricing provisions in VAT legislation, summer 2018 was an important period for Luxembourg VAT.
Also, at EU level, case law of the Court of Justice of the European Union ("CJEU") is changing with regard to the issue of VAT recovery on deal costs.
These issues have an impact on private equity and those involved therein must be aware of these recent developments in order to detect potential opportunities in their Luxembourg operations.

VAT group launched in Luxembourg

The expected VAT group is now reality in Luxembourg!

Bill 7278, introducing the VAT group regime into the Luxembourg VAT law, was voted into law on 26 July 2018 and entered into force on 31 July 2018.

The main impact of opting for a VAT group is that, for VAT purposes, supplies of goods or services between members of a VAT group will no longer fall within the scope of VAT, as a VAT group is considered one single taxable person. VAT grouping also allows consolidated VAT returns to be filed (instead of multiple VAT returns resulting from individual VAT registrations of stand-alone companies).

For more details on the conditions to opt for a VAT group and the resulting impacts for group members, please read our latest publication regarding this topic.

Open market value retained for VAT on certain transactions

Bill 7278 also implemented Article 80 of the VAT Directive (Council Directive 2006/112/EC), introducing transfer-pricing provisions into Luxembourg VAT law. Said provisions also entered into force on 31 July 2018.

This measure will only apply to transactions taking place between related parties involving family or other close personal ties, as well as when they have management, ownership, membership, financial or legal links, under certain conditions. The consideration (price) of the supply will be revalued to the open market value that would be applicable under conditions of fair competition for comparable supplies or to the costs price of the goods or the full costs incurred by the supplier to supply the service.

To see which scenarios could result in the price being revalued, please read the article.

Active involvement in the management of a subsidiary and VAT recovery on deal (acquisition) costs

In its judgment regarding Marle Participations SARL v Ministre de l'Économie et des Finances (Case C-320/17), the CJEU ruled on the recovery of VAT on costs incurred for acquiring a subsidiary. This judgment is in favour of holding companies actively involved in the management of their subsidiaries. This case is interesting as the CJEU provides further insight regarding the meaning of "active involvement".

More details on this topic can be found here

Contact us

Marie-Isabelle Richardin

Partner, PwC Luxembourg

Tel: +352 49 48 48 3009

François Antoine

Director, PwC Luxembourg

Tel: +352 49 48 48 3339

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