A new ruling on VAT groups by the European Court of Justice could net HM Revenue & Customs millions by helping it protect its tax revenue and strengthen its anti-avoidance legislation.

The ruling will allow HMRC to stipulate time conditions on companies that wish to reclaim tax as part of a corporate VAT group.

The ECJ ruled that it was reasonable for member states to put temporal restrictions on companies to qualify for VAT group status and that it does not offend the principle of neutrality.

‘The effect of that principle is to prohibit wholly artificial arrangements which do not reflect economic reality and are set up with the sole aim of obtaining a tax advantage,’ said the judgment, issued on 22 May.

HMRC introduced anti-avoidance legislation to stem the number of VAT groups artificially set up purely to reduce a company’s tax bill.

Lorraine Parkin, a VAT partner at Grant Thornton, said: ‘At the moment we don’t have any time conditions on VAT groups. If they were to introduce more time conditions it might help [HMRC] in the fight against avoidance. It’s not good news for business.’

The ruling was based on a case between Ampliscientifica and Amplifin and the Italian Ministry of Finance and Revenue Authority.

‘HMRC is studying the judgment to determine whether there are any implications for the UK,’ HMRC said.