Italy opens UK VAT uncertainty

The tax affairs of little-known foreign companies have never caused much
concern for HM Revenue & Customs and the Treasury ­ until now.

The company causing waves in the UK is Italian business Ampliscientifica,
which has had a case on VAT referred to the European Court of Justice by Italy’s
Supreme Court of Cassation.

Experts believe that the ECJ decision on the case, which will deal
specifically with the use and structure of VAT groups, could cause major
repercussions in the UK.

In a briefing note on the case, PricewaterhouseCoopers said: ‘Over the years,
the UK has introduced extensive anti-avoidance legislation in relation to VAT
groups, some of which [is] in common with the Italian referral in
Ampliscientifica.’

PwC added: ‘UK taxpayers will be interested to see whether the eventual
outcome of this case might call into question the legitimacy, or otherwise, of
the UK’s anti-avoidance provisions.’

VAT group rules provide special provisions for groups and associated
companies, allowing them to elect a single member to manage VAT.

The arrangement reduces the administrative burden on medium and large
businesses that have subsidiaries and various divisions.

The case concerns whether VAT groups have a real economic substance, and
whether and how tax authorities might challenge the groups set up for avoidance
reasons.

Lorraine Parkin, a VAT partner at Grant Thornton, says the Ampliscientifica
case will pose two questions to the ECJ that could affect the UK.

The first issue is whether HMRC should be allowed to treat some groups of
companies differently to others for avoidance purposes, even though all the
applicable groups qualify as VAT groups.

The second question deals with the length of time a VAT group has been
assembled for, a question HMRC will be particularly interested in.

‘In Italy a group of companies have to be linked for a certain amount of time
to qualify for VAT group status.

‘There are no temporal restrictions in UK rules, but if the ECJ says such
restrictions are allowable, the UK taxman may be able to use temporal
restrictions to prevent avoidance,’ Parkin said.