BDO Indirect Tax News

Netherlands - Foreign establishments excluded from Dutch VAT groups

As from 1 January 2024, it is no longer possible to include foreign establishments situated in the EU in a Dutch VAT group, a change that has significant consequences (particularly for the financial sector) for the VAT treatment of supplies between entities that are part of a Dutch group and that have foreign establishments. The State Secretary had announced the change in a decree published in July 2022 in response to the decision of the Court of Justice of the European Union in the Danske Bank case (for prior coverage, see the article in the July 2022 issue of Indirect Tax News and the article in the June 2021 issue).

A Dutch VAT group may be formed by two or more VAT-registered businesses established in the Netherlands or persons that have a fixed establishment in the Netherlands. Previously, where a fixed establishment of a foreign company joined a Dutch VAT group, the foreign head office was automatically included in the group. As a result, cross-border supplies to or from a foreign establishment were outside the scope of VAT in the Netherlands. Among the benefits of VAT grouping are that all supplies of goods and services within the group are disregarded for VAT purposes, so no VAT is calculated on intragroup transactions and a single VAT return can be filed on behalf of the group.
Impact on Dutch practice
As a result of the change in policy, a foreign head office and a foreign fixed establishment can no longer be part of a Dutch VAT group. This has the effect that a Dutch group and a foreign establishment are separate taxable persons for VAT purposes and supplies between the group and the foreign establishment are subject to VAT (unless an exemption applies or the place of supply is outside the EU).

Affected taxpayers should identify how services are purchased and charged within their company, and the VAT consequences. The policy shift will have ramifications, such as a negative impact on businesses that are not entitled to fully deduct VAT, new reporting and compliance obligations and possibly the need for changes to a business’ administration and ERP systems. It may be possible to modify the group structure to create more beneficial VAT treatment, for example, by having services purchased directly by the fixed establishment or by having services purchased partly by the head office and partly by the fixed establishment.

Madeleine Merkx
IIngmar Benschop
BDO in Netherlands