At the tax level for the taxation of VAT, the so-called special regime of group of entities provided for in Law 37/1992 can be adopted voluntarily, which allows to regulate the taxation of VAT in a consolidated way as if it were a single taxable person, to all legal persons within the same member state that although they enjoy legal independence, are firmly linked to each other in the financial, economic and organizational orders.
Derived from the European Directive 2006/112/EC, our Law 37/1992, of December 28, on Value Added Tax (LIVA) includes the possibility that voluntarily those groups of entities that are within the national territory and want to consolidate the taxation of VAT, can adopt the so-called Special Regime of group of entities, which is regulated in articles 163 quinquies to 163 nonies of the LIVA.
The benefit of adopting this special regime lies in the fact that the group of companies will be able to avoid the financial costs derived from the existence of VAT balances in favor and balances against, resulting from the self-assessments presented by each of the different entities that make up the group, creating a system in which these balances are offset. Another benefit, too, is to eliminate the costs that may arise from the taxation of VAT in intra-group transactions in commercial transactions carried out between the different companies of the group.
In general, article 163 quinquies of the LIVA, defines that it is considered as a group of entities that can benefit from this special regime, defining which are the subjective indications that must be given: “A group of entities shall be considered to be that formed by a dominant entity and its dependent entities, which are firmly linked to each other in the financial, economic and organizational orders, in the terms that are developed by regulation, provided that the headquarters of economic activity or permanent establishments of each and every one of them are located in the territory of application of the Tax”.
That is to say, the group of companies that wants to benefit from this special regime must have a structure of dependency, between a dominant company, and others dependent on it by financial, economic or organizational ties; a bond of dependency that must be unique, i.e. it is not allowed to belong to more than one group of companies, so therefore, each dependent company can only be linked to a single dominant company.
Adoption of the special regime for the group of entities.
The special regime of the group of entities may be applied if the established requirements that we will see below are met, and when there is such a voluntariness, that each of the companies agrees individually.
The option to adopt the special regime will have a minimum validity of three years, and will be understood to be extended, unless it is waived, which must be exercised during the month of December prior to the beginning of the calendar year in which it must take effect, either in relation to waiving the application of the special regime of the total of entities, as if it were individual waivers (art.163 nonies.cuatro.1.ª of the LIVA). This waiver shall be valid for a minimum of three years and shall be made in the same manner. In any case, the application of the special regime will be conditional on its application by the dominant entity.
All agreements for the adoption of incorporation into the special group regime, such as their resignation, must be adopted by the Boards of Directors, or bodies that exercise an equivalent function, of the respective entities before the beginning of the calendar year in which the special regime will be applicable.
Requirements of the special regime of group of entities.
When is a dominant entity considered to exist?
- a) That it has its own legal personality. However, permanent establishments located in the territory of application of the Tax may have the status of dominant entity with respect to the entities whose holdings are as affected by said establishments, provided that the rest of the requirements established in this section are met.
- b) That has effective control over the entities of the group, through a participation, direct or indirect, of more than 50 percent, in the capital or in the voting rights of the same.
- c) That this participation is maintained throughout the calendar year.
- d) That it is not dependent on any other entity established in the territory of application of the Tax that meets the requirements to be considered as dominant.
Likewise, the proviso is established that those companies that do not act as entrepreneurs or professionals, will be considered as dominant entities if they meet the 4 previous requirements.
When is a dependent entity considered to exist?
It will be considered a dependent entity, when the company that is not the dominant entity is established within the national territory and has more than 50% of its shares during the entire fiscal year held by the dominant entity or in possession of the voting rights.
The acquisition of the status of dependent company will be made the following calendar year in which the parent company acquires more than 50% of the shares or voting rights, however if this acquisition is made in newly created entities, the acquisition of the status of dependent company will be at the time of incorporation, provided that the other necessary requirements are met.
However, the loss of some of the requirements established to be a dependent entity would cause the loss of that status in the same liquidation period in which the event occurs.
Existence of a financial, economic or organizational link.
Article 61.bis of the Value Added Tax Regulation (RIVA), establishes in its section 7 when it must be considered that there is a financial, economic or organizational link, so that it is understood that there is a group of companies.
- Financial linkage: There is a financial link when the dominant entity has effective control of the company through a participation of more than 50% in the capital or voting rights of the entities of the group.
- Economic linkage: It will be considered that there is an economic link when the entities of the group carry out the same economic activity or when, carrying out different activities, they are complementary or contribute to the realization of the same.
- Organizational linkage: An organisational link shall be deemed to exist where there is a common address in the group entities.
In any case, it is presumed that when an entity complies with the financial link, it is also understood that it meets the requirements of economic and organizational linkage.
However, the above presumption is understood to be “iuris tantum” and that in any event evidence to the contrary is adjusted.