A comparative analysis of VAT grouping schemes from a Nordic perspective—aspects of tax avoidance and fiscal competition
Article Category: Article
Publié en ligne: 26 mai 2017
Pages: 1 - 25
Reçu: 28 févr. 2017
Accepté: 17 mars 2017
DOI: https://doi.org/10.1515/ntaxj-2017-0001
Mots clés
© 2017 K. K. Egholm Elgaard
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.
Value-added tax (VAT) grouping schemes, whereby several legally independent entities are treated as a single taxable person for VAT purposes, are common and well known in the world of VAT/general sales tax (GST). While some of the typical elements of VAT grouping schemes are quite similar in most national VAT grouping schemes (there is one taxable person, internal supplies are outside the scope of VAT, VAT deductions are made on a group basis, only one VAT return is made, etc.) Doesum Currently, 19 EU Member States have implemented rules on VAT grouping or joint registration Soares and Arnaldo (2015). Council Directive 2006/112/EC of November 28, 2006, on the common system of value-added tax (the “VAT Directive”). Nevertheless, Norway has close ties to the European Union under the EEA Agreement (see Section 6).
Within the European Union and globally, different national VAT grouping schemes can give rise to complex problems relating to tax avoidance and fiscal competition. For example, this can be the case where there is tax competition between states that have VAT grouping schemes and states that do not have VAT grouping schemes or where differences in national VAT grouping rules on the treatment of cross-border trade to and from VAT groups are exploited in order to obtain double non-taxation. At a national level, competition between sectors on the same market that are favored by having the option of VAT grouping and sectors that are not so favored can be distorted by the use of VAT groups. Further, VAT groups can be used to obtain unintended VAT advantages by abuse and avoidance in connection with VAT exemptions and deductions and so on.
This article focuses on the problems of tax avoidance and fiscal competition from a Nordic perspective, based on a comparative analysis of the VAT grouping schemes in Denmark, Norway, and Sweden and with an emphasis on the contextual and teleological interpretation of the rules on VAT grouping (see Section 2.2). This Nordic perspective on VAT grouping gives just a small part of the global picture that can be used as a basis for a discussion of similar problems internationally.
The results presented in this article are new, as previous research projects have focused more on the subject matter of the rules and less on the aspects of tax avoidance and fiscal competition Pfeiffer (2015a,b); Ehrke-Rabel (2015); Eskildsen (2011); Vyncke (2009); Alhager (2001); Westberg (1994). Of course these aspects have been explored before Swinkels (2005, 2010); Vyncke (2007), but not like in this article.
Since 2009, and long before that Swinkels (2010), the EU Commission clearly expressed concerns that differing implementations of the rules on VAT grouping by the EU Member States are highly problematic in terms of VAT fraud and evasion, breach of fiscal neutrality and fiscal competition, potentially affecting the internal market and the basic principles of the EU VAT system. COM(2009) 325 final of July 2, 2009, p. 2. The communication is discussed by Massin and Vyncke (2009). Case C-480/10
Thus the opinion of the Commission remains to be verified or falsified. The purpose of the article is to examine these problems raised by the Commission from a Nordic perspective.
Given the shared EU background to the Danish and Swedish rules on VAT grouping, it might be expected that they would be largely similar, but there are certain differences in their national rationales for the rules and their balancing of the concerns for tax avoidance and fiscal competition (see Section 7). It might also be expected that the Nordic VAT grouping schemes would be quite similar, given the traditionally high degree of exchange of ideas and inspiration on rules and best practice within the Nordic legal community. This article proves otherwise (see Section 2.1 on the reasons for selecting Denmark, Norway, and Sweden as representatives of the Nordic legal community in this article).
So far the CJEU has not found that a Member State has exceeded its margin of discretion under Article 11 of the VAT Directive that empowers Member States to introduce VAT grouping schemes (see Section 5). Recently, in the Joined Cases C-108/14 and C-109/14 Joined Cases C-108/14 and C-109/14 Joined Cases C-108/14 and C-109/14
The margin of discretion under Article 11 of the VAT Directive compliance with the proportionality principle will be taken into account in the analysis of Danish and Swedish law (see Section 8.3).
The purpose of the article is to examine whether the different VAT grouping schemes in the Nordic countries (Denmark, Norway, and Sweden) actually cause problems in terms of tax abuse and avoidance or distortion of competition and to examine how such problems are dealt with by these countries. The concepts of “tax avoidance” and “fiscal competition,” as used in this article, are explained in Section 4. An important aim of this article is to examine how these problems interact with the purposes, backgrounds, and national characteristics that lie behind the different national VAT grouping schemes and to see what their consequences may be for the analysis of the national schemes.
These three Nordic countries have been selected because of their geographical proximity, with borders that facilitate considerable cross-border trade and mobility of workers. These countries are also part of a Nordic legal community (see Section 1.2), with shared histories and common traditions, royal ties, cultures, identities and mentalities, and so on. The similarities of their languages also make it logical to choose them for the purposes of this study. The comparative analysis of the selected countries will provide new information as to the understanding and application of the concept of VAT grouping in the European Union Kristoffersson (2016).
The references to national case law and administrative practices in this article are not exhaustive but are the result of subjective assessments of the cases that best fulfill the purposes of the article and most clearly furnish proof of tax avoidance or fiscal competition in practice. Only publicly available cases have been used in this research. It might have been interesting to have had access to unpublished material from the national tax authorities in cases where an application for VAT group registration has been refused or a VAT group has been deregistered by reference to tax avoidance or fiscal competition. Sweden, in particular, would have been interesting in this respect, as it has specific rules to prevent abuse and avoidance (see Section 7.3). A further research project may enable this issue to be studied.
The Case C-7/13 Case C-210/04
This article applies the method of comparative analysis to the rules on VAT grouping in Denmark, Norway, and Sweden. Comparative analysis can be used to gain new knowledge, insight, understanding, inspiration, and perspectives Elgaard (2016a); Tvarnøe and Nielsen (2014); Kristoffersson (2010, 2016).
Given the purposes of this article, the comparative analysis focuses specifically on areas of VAT grouping that relate to tax avoidance and fiscal competition (see Section 2.1). Such broad themes in a comparative analysis can help provide a better understanding of the structure of the issues and possible solutions in national systems Ault (1999).
In the comparative analysis, there is an emphasis on the contextual interpretations of the national rules on VAT groups so as to fully understand the rationales for the national VAT grouping schemes Hellner (1994); Westberg (1994). Contextual interpretation is natural for Denmark and Sweden, as it is an interpretative principle applied by the CJEU Case 283/81 Treaty on the Functioning of the European Union (TFEU) Article 267.
The comparative analysis emphasizes the teleological interpretation of the national rules on VAT grouping in order to examine the purposes and intentions for the rules. Again, this is natural for Denmark and Sweden, as the CJEU applies teleological interpretations to the EU rules Rendahl (2016). Case 283/81
Given the research purpose of the article set out in Section 2.1 and the methods described in Section 2.2, this article is structured as follows:
First, the basic concepts and definitions used in the article are briefly explained in Section 4. Next, the EU background to the VAT grouping schemes in Denmark and Sweden is thoroughly examined in Section 5, followed by a brief discussion of Norway’s position as an EEA member in Section 6.
In Section 7, the differences and similarities in the rationales for the national VAT grouping schemes in Norway, Denmark, and Sweden are analyzed. Then, in Section 8, the risks of tax avoidance and the distortion of competition in connection with VAT groups are analyzed on the basis of the national case law and administrative practice in these countries. VAT grouping schemes are briefly compared with joint income taxation schemes in Section 9, and the conclusions and considerations are laid out in Section 10.
The concepts of “tax avoidance” and “fiscal competition,” as used in this article, must be explained briefly, as they are focus points in the comparative analysis (see Section 2.2). The explanations are based on the existing concepts in law and add nothing new.
The concept of “tax avoidance” is important for the purpose of the article, as one of the research purposes is to examine whether VAT grouping rules in the Nordic countries have been perceived to entail unjustified advantages or room for tax avoidance and how these advantages and avoidance issues have been dealt with (see Section 2.1).
In general, the distinction between tax avoidance and tax abuse is not clear Cooper (1997) and the concepts are often used more or less in the same way Piantavigna (2011); Kofler and Tumpel (2009); Monés
Differences in national rules preventing abuse and avoidance must be taken into account, as they have an impact on the comparative analysis of VAT grouping schemes. One obvious difference is that Denmark and Sweden are subject to the VAT Directive and the CJEU’s case law, whereas Norway is generally only subject to Norwegian VAT regulations and case law (see Section 4.1.2).
Since the Case C-255/02 Case C-255/02 Case C-255/02
The term “VAT abuse,” as used in this article, refers explicitly to the EU VAT anti-abuse doctrine and national implementations of it.
Before the VAT anti-abuse doctrine was clarified in the Case C-260/95
Denmark and Sweden may have national VAT rules on anti-avoidance in addition to those rules developed in the EU case law, but it is outside the scope of this article to consider such rules in greater detail (see Section 2.1).
Norway has developed its own national case law based on the concept of The literal English translation is “cutting through.” Same linguistic usage is found in
From an outsider’s perspective, based on the principle of legal certainty and the requirement for legal justification, the term “anti-avoidance” should be reserved for situations where an abusive practice or conduct can be clearly established, and a restrictive/expansive interpretation of the law should be distinguished from such abusive situations Gjems-Onstad (2009); Fjermeros (2014). However, it is likely that a suspicion or indications of abuse in a case may influence the interpretation of law toward a more restrictive/expansive interpretation and, in conjunction with other elements upon which the decision is made, such suspicion or indications may affect a decision even if there is no direct reference to abuse. However, this distinction is not important here because both situations would be interesting for the research purpose (see Section 4.1).
The application to VAT law of the anti-avoidance concept derived from case law has been discussed in Norway, but from the case law of the Norwegian Supreme Court, Høyesteret [HR] [Supreme Court] 2006-10-13, Rt. 2006 p. 1199
The concept means that anti-avoidance cannot be established purely because a transaction is motivated by obtaining a tax advantage, but anti-avoidance can be established if obtaining a tax advantage is the main purpose of a transaction. This must be based on an overall evaluation in which the key questions are what value ( Høyesteret [HR] [Supreme Court] 1999-06-28, Rt. 1999 p. 955 Rt. 2002 p. 456
The Zimmer committee proposed introducing a general anti-avoidance clause to be applied to both direct and indirect taxation, but it is not yet adopted. Noregs offentlege utgreiingar [NOU] 2016:5 Omgåelsesregel i skatteretten — Lovfesting av en generell omgåelsesregel i skatteretten [government report] (Nor.). The report has been criticised by Folkvord (2016); Gjems-Onstad (2016); Mikelsen (2016).
It is outside the scope of this article to elaborate further on the concept of tax avoidance, but the national differences will be taken into account in the analysis of the Nordic VAT grouping schemes.
The term “fiscal competition” used in the article is given the broadest possible meaning. “Fiscal competition” covers all potential aspects of fiscal competition that are relevant to the research purpose of this article (see Section 2.1). The examples of fiscal competition given in the following are, therefore, not exhaustive.
Fiscal or tax competition generally refers to the situation where different states compete against each other by offering favorable national tax rules to maximize the state’s tax revenue by attracting foreign resources and investments Andersson and Fall (2001); Ault (2002); Schön (2002). There are both positive and negative effects of fiscal competition Lampreave (2011); Cerioni (2005) but normally harmful competition and distortion of competition are considered to have negative effects and should be removed, especially in the EU regime Vanistendael (2001).
The removal of distortions of competition and hindrances to the free movement of goods and services within the European Union has been part of the establishment of the internal market in which the harmonization of the EU VAT system has played a part. TFEU Article 113 and Preamble 1-4 of the VAT Directive. COM(2016) 148 final of 7 April 2016. TFEU Article 19. Preamble 5, 7, and 30 of the VAT Directive. Case C-216/97 Case C-309/06
There are other aspects of fiscal competition or competition neutrality that affect businesses and customers at national level.
Where businesses compete on the same market, there may be fiscal competition if one business has a tax advantage and thereby achieves a better competitive position than other businesses operating on the same market. In that case, the tax advantage distorts competition Vanistendael (2001). An example of trying to avoid such distortion of competition is the VAT exemption for independent groups of persons who carry on an activity that is exempt from VAT or in relation to which they are not taxable persons pursuant to Article 132(1)(f) of the VAT Directive. One of the conditions for allowing the VAT exemption is exactly that it must not be likely to distort competition. Case C-8/01
In relation to customers, there may be fiscal competition where a customer would choose one product over another because the chosen product is cheaper, because of a tax advantage granted in the supply chain prior to the sale to the end customer. For example, a tax advantage may be obtained by allowing a VAT exemption to independent groups or a VAT group.
The broad and general definition of fiscal competition used in this article relates primarily to the fiscal competition or competition neutrality affecting businesses and customers at national level.
Denmark and Sweden share the same EU background. Their national implementations of the EU rules on VAT grouping are based on Article 11 of the VAT Directive:
“After consulting the advisory committee on value added tax (hereafter, the ‘VAT Committee’), each Member State may regard as a single taxable person any persons established in the territory of that Member State who, while legally independent, are closely bound to one another by financial, economic and organisational links. A Member State exercising the option provided for in the first paragraph, may adopt any measures needed to prevent tax evasion through the use of this provision.”
It appears from the provision that it is optional for the Member States to implement rules on VAT grouping and to implement measures against tax evasion (see Section 5.3). The provision is very broad, laying down few conditions. It allows the Member States to design their own national VAT grouping schemes, largely at their discretion. The reason for the differing national implementations of the EU VAT grouping schemes (see Section 1.2) is implicit in the minimalistic formulation of Article 11 of the VAT Directive.
The wording of Article 11, first paragraph, of the VAT Directive is very similar to that of Article 4(4), second paragraph, of the Sixth VAT Directive. Sixth Council Directive of 17 May 1977 (77/388/EEC) (the “Sixth VAT Directive”). The provision originates from the Second VAT Directive of April 11, 1967 (67/228/EEC) (the “Second VAT Directive”) Article 4, Annex A, para. 2 Pfeiffer (2015a); Vyncke (2009); Terra and Kajus (2014), and COM(65) 144 final of April 13, 1965, Article 2, Annex A, para. 2. COM(73) 950 final of June 20, 1973. “Moreover, paragraph 4 goes into finer details, so that, in the interests of simplifying administration or of combating abuses (e.g. the splitting up of one undertaking among several taxable persons so that each may benefit from a special scheme) Member States will not be obliged to treat as taxable persons those whose ‘independence’ is purely a legal technicality.”
Thus, the purpose of VAT grouping schemes based on the Sixth VAT Directive was to simplify administration or combat abuse, for example, where advantage is taken of different VAT schemes and when such advantage arises purely from legal technicalities as to the definition of “independence.” The objective of simplifying administration is not specified in the proposal, but the Commission has subsequently stated that VAT grouping schemes should predominantly be seen as a simplifying measures. COM(2009) 325 final of July 2, 2009, p. 12. Joep Swinkels has questioned the actuality of the simplification purpose from a contemporary view Swinkels (2010).
The purpose of combating abuse is described in more detail. It is stated that the aim of VAT grouping schemes was to combat purely technical—legal arrangements where the independence of separate taxable persons does not conform to reality. A literal interpretation could be that the purpose was to authorize Member States to disregard, for VAT purposes, artificial arrangements of several taxable persons when in reality such persons should be considered as one taxable person for VAT purposes. As described by the Commission of the European Communities in COM(2009) 325 final, p. 4: “In this regard, a VAT group could be described as a ‘fiction’ created for VAT purposes, where economic substance is given precedence over legal form.”
The purpose of combating abuse is further addressed in the 2006 proposal to amend Council Directive 2006/69/EC of July 24, 2006. The overall purpose with the directive was to provide the Member States with the option of quickly adopting legally sound measures in order to counter avoidance and evasion in certain specific and targeted areas, COM(2005) 89 final of March 16, 2005. COM(2005) 89 final of March 16, 2005. “Although not arising from existing derogations, in Article 1(1) and 1(2) the Commission is taking the opportunity to propose changes to strengthen areas which Member States find can be exploited to avoid VAT. In both the area of ‘grouping’ in Article 4(4) of the Sixth Directive and in ‘transfers of going concerns’ (Article 5(9)) the proposal allows for Member States to take steps to ensure that the operation of the rules does not allow an unfair result which would unjustifiably benefit or prejudice those concerned. Member States already have the discretion to set the circumstances in which the both of these rules can apply. The new rule, already applied to capital goods through Article 20(6), would help Member States prevent unfair results arising from the operation of the rules.”
Without referring to any example, the EU Commission proposed to amend the rules on VAT grouping in order to strengthen regulations in areas in which the Member States found that there was a risk of VAT avoidance. It was stated that the rules on VAT grouping should not allow an unfair result that would unjustifiably benefit or prejudice those concerned. It is unclear whether “unfair results” and “unjustifiable benefits” only refer to tax avoidance or may also refer to competition neutrality, given the reference to the “prejudice of those concerned,” which could imply harmful competition to the prejudice of taxable persons other than those in the VAT group. This is supported by the proposed amended wording of Article 4(4), third paragraph, of the Sixth VAT Directive, which refers to “unjustified disadvantage for taxable persons”: COM(2005) 89 final of March 16, 2005. “Where a Member State exercises the option provided for in the second subparagraph, it shall ensure that the application of this option creates neither unjustifiable benefit nor unjustified disadvantage for taxable persons.”
Regardless of any uncertainty about the purpose of the proposal, it must be concluded that the purpose of the 2006 amendment was to deal with tax avoidance, COM(2009) 325 final of July 2, 2009, p. 3. Council Directive 2006/69/EC of July 24, 2006.
“A Member State exercising the option provided for in the second subparagraph, may adopt any measures needed to prevent tax evasion or avoidance through the use of this provision.”
According to this amendment, the Member States are authorized to implement any measures in national law to prevent tax evasion or avoidance in connection with their national VAT grouping schemes. Such measures must be in accordance with the margin of discretion and principle of proportionality pursuant to the current Article 11 of the VAT Directive (see Section 1.3). Thus, for other purposes, for example, if the rules create unjustifiable benefits or disadvantages for taxable persons, the starting point must be outside the scope of Article 11 of the VAT Directive unless these are integral elements of evaluation of tax evasion or avoidance. This is substantiated by the CJEU, which has never referred to purposes other than tax evasion or avoidance in this respect (see Section 1.3 and the cases cited there).
Sweden has implemented special rules to prevent abuse and avoidance for VAT groups pursuant to Article 11, second paragraph, of the VAT Directive (see Section 7.3). Denmark has not implemented such rules (see Section 7.2). The question is whether the Member States are obliged to implement special anti-avoidance rules for VAT groups even though the provision states that the Member States “may” adopt any measures to combat tax evasion or avoidance (see Section 5). In the author’s opinion, the Member States do have such an obligation based on the Case C-132/06 COM(2009) 325 final of July 2, 2009, p. 12.
The final wording of Article 4(4), third paragraph, of the Sixth VAT Directive directly corresponds to Article 11, second paragraph, of the VAT Directive, except that the word “avoidance” is omitted from Article 11 of the VAT Directive. The reason for this is unknown, but avoidance must be covered by Article 11 of the VAT Directive, as it is a recast of the structure and wording of the Sixth VAT Directive, making no substantive amendment to the existing legislation. Preamble 1 and 3 of the VAT Directive. See Case C-29/08 Joined Cases C-108/14 and C-109/14
Some aspects of fiscal competition have been addressed in the EU rules on VAT groups, but not to the same extent as with the aspects of tax avoidance (see above). This should not be understood as ranking the importance of the two, as it could equally well be seen as expressing a different need for clarification in the COM(65) 144 final of April 13, 1965, Explanatory memorandum, III. Explanatory comments on certain provisions of the proposed TVA system, p. 20. Joined cases C-181-229/78
The national rationales for the Danish and Swedish VAT grouping schemes (see Sections 7.2 and 7.3) must be seen in light of the purpose and background for the EU rules on VAT groups, based on Article 11 of the VAT Directive. In Sections 7.2 and 7.3, it will be seen that the purposes and backgrounds for the Danish and Swedish VAT grouping rules differ significantly from the rationale for the EU rules.
Norway is not a Member of the European Union, but it is a member of the EEA. EØS-loven [EEA Act] (Lov-2014-04-11-11) (Nor.).
There can be exceptions, for example, when national legislation gives the European Union influence over Norwegian VAT law. This is the case in limited areas of VAT law, such as the VAT exemption for financial services, Merverdiavgiftsloven [MVA-loven] [VAT Act] § 3–6. (LOV-2009-06-19-58) (Nor.). The VAT exemption was introduced by Lov om endringer i lov 19. juni 1969 nr. 66 om merverdiavgift [Endring til MVA-loven] [Amendment to VAT Act] § 5 b. (LOV-2000-12-21-113) (Nor.). Lov om Merverdiavgift [VAT Act] § 5b, first part, No 4 (LOV-1969-06-19-66) (Nor.); Odelstingsproposisjon [Ot.prp.] Ot.prp. No 2 (2000-2001) Omlov om endringer i lov 19. juni 1969 nr. 66 om merverdiavgift [government bill] (Nor.); Instillinga til Odeltinget [Innst.O.] Innst.O. No 24 (2000-2001)Omlov om endringer i lov 19. juni 1969 nr. 66 om merverdiavgift (merverdiavgiftsloven) m.v. (Merverdiavgiftsreformen 2001) [government recommendation] (Nor.); and Finansdepartementets tolkingsuttalelse [UFIN] UFIN-2001-10001 Om merverdiavgiftsunntaket for omsetning av finansielle tjenester [Statement from the Department of Finance] (Nor.). In UFIN-2001-10001 (Nor.) reference was made to Case C-349/96
In several cases, the Norwegian Supreme Court has emphasized the relevance of the EU legislation and case law in national matters and has actively used the EU law for interpreting national rules, Høyesteret [HR] [Supreme Court] 2007-02-05, Rt. 2007 p. 140 Høyesteret [HR] [Supreme Court] 2006-03-27, Rt. 2006 p. 364
In principle, the EU law is not generally relevant for Norwegian law. However, in specific cases where Norwegian legislation states that the rules are harmonized with the EU law or that the rules should be interpreted in accordance with the EU law, the EU law will be relevant, as in the case of the VAT exemption for financial services Dyrnes (2015b); Olsen and Saxegaard (2009); Wroldsen (2014). See also Norli (2016); Ihlebæk (2011). It is then for the Norwegian courts and tax authorities to decide whether the EU law has an impact on a national rule in the specific case.
In the case of VAT grouping, there is no direct link between the EU law and the Norwegian rules,
As the rationale for the EU VAT grouping scheme (see Section 5) is directly relevant for Denmark and Sweden, there is an analysis of the national rationales for the Nordic VAT grouping schemes. The analysis demonstrates that the national rationales differ significantly from each other, particularly on tax avoidance and fiscal competition. The analysis looks first at Norway, then at Denmark, and finally, at Sweden. This order is based on the volume of national regulations on VAT groups in each country, starting with the jurisdiction with the fewest provisions through to the jurisdiction with the most provisions.
Norway’s rules on VAT groups are purely national (see Section 6). The Norwegian VAT grouping scheme was introduced in 1969 at the time of the adoption of the former Norwegian VAT Act. Lov om merverdiavgift [VAT Act] § 12. (LOV-1969-06-19-66) (Nor.). Odelstingsproposisjon [Ot.prp.] Ot.prp. No 17 (1968-1969) Omlov om alminnelig omsetningsavgift og særskilt avgift på visse varer og tjenester (merverdiavgiftsloven) [government bill] (Nor.). “There could be a need to consider several cooperating companies’ businesses as a single taxable business. Without such a rule it would not be possible to grant deductions for input VAT on the total business when operating equipment is owned by one company while sales are made by another company.” The author’s translation.
Thus, the main purpose of the VAT grouping scheme was to secure an effective right for cooperating companies to deduct input VAT Gjems-Onstad
The competition neutrality aspect is addressed by Gisla Bråthen, Erik Frøystad, and Ole Martin Haugan, who state that the purpose of the VAT grouping scheme is to achieve neutrality, irrespective of the organization of a business as a single company or a VAT group consisting of several companies. Oslo tingrett [TOSLO] [Oslo District Court] 2011-02-11, TOSLO-2010-131949
The focus on fiscal competition can also be seen in Norwegian case law, where a broad interpretation is applied to determining which companies are entitled to form a VAT group. This is because allowing some business entities to form VAT groups but not others could distort competition and conflict with the general principle of equal treatment Gjems-Onstad UFIN-2007-4A (Nor.).
The proposal for the rules on VAT grouping may also refer to the aspect of tax avoidance Ot.prp. No 17 (1968-1969) (Nor.). The author’s translation.
Given the right of VAT groups to make deductions for the whole VAT group, joint and several liability for VAT was necessary. Høyesteret [HR] [Supreme Court] 2013-06-12, Rt. 2013 p. 858 Ot.prp. No 17 (1968-1969) (Nor.). The author’s translation.
This anti-abuse rule was adopted as part of the rules on VAT grouping (see below). The 85% rule has been criticized in Norwegian legal literature because of the alleged lack of a legal reason for the exact percentage rule Gjems-Onstad
The original proposal for the rules on VAT groups was fully implemented in Section 12 of the former Norwegian VAT Act, Odelstingsproposisjon [Ot.prp.] Ot.prp. nr. 76 (2008-2009) Omlov om merverdiavgift (merverdiavgiftsloven) [government bill] (Nor.). MVA-loven § 2-2 (3) (Nor.). Act relating to Value Added Tax [MVA-loven] [Norwegian VAT Act in English] § 2-2 (3). Translated by the Directorate of Taxes [RF — 0021] (Nor.). “Two or more cooperating companies may be registered as one taxable person if at least 85% of the capital of each company is owned by one or more of the cooperating companies. All companies that participate in a joint registration shall be jointly liable for the payment of VAT.”
The Norwegian rules on VAT grouping are short and effective, containing rules on the prevention of distortion of competition and on anti-avoidance. The underlying rationale for the rules is thereby directly reflected in the rules.
According to the
The Danish VAT grouping scheme (similar to the Swedish VAT grouping scheme; see Sections 5 and 7.3) is based on implementing Article 11 of the VAT Directive (see Section 5). The current rules on VAT grouping are divided into three provisions in the Danish VAT Act Bekendtgørelse af lov om merværdiafgift (momsloven) [ML] [VAT Act] § 3, sec. 3, § 46, sec. 9, and § 47, sec. 4. (LBK No 760 of June 21, 2016) (Den.). The author’s translation. “Upon request, two or more taxable persons which exclusively perform taxable activities can be registered together. The tax authorities may permit persons carrying on activities that are subject to VAT registration to be registered together with persons whose activities are not subject to VAT registration and persons without economic activities. Such permission may only be granted if, via direct or indirect ownership, one person (parent company etc.) owns all the shares etc. in the other person(s) (subsidiaries, sub-subsidiaries etc.) which are covered by the joint registration. Only companies etc. that are established in Denmark may be registered jointly. An application for joint registration must be filed not later than one month before the joint registration is intended to take effect.”
Denmark has not implemented rules to combat tax evasion and avoidance, as authorized by Article 11, second paragraph, of the VAT Directive (see Section 5.3, which is discussed in Section 8.1).
Since the first Danish VAT Act in 1967, the option for VAT groups existed as business entities that did not have the same owner could be registered jointly upon application. Lov om almindelig omsætningsafgift [VAT Act] § 5, sec. 3. (Lov No 102 of March 31, 1967) (Den.). Lov No 102 of March 31, 1967, § 24 (Den.) Skatteministeriet [Danish Ministry of Taxation]: Redegørelse om Harmonisering af skatte- og afgiftsregler, May 1991, p. 198-200 [working group report] (Den.). Forslag til Lov om almindelig omsætningsafgift [LF] LF of December 7, 1966, p. 318 [government bill] (Den.).
There appear to be many rationales for the Danish VAT grouping scheme that was introduced in 1994 in its current form based on Article 4(4) of the Sixth VAT Directive (see Section 5). Forslag til Lov om merværdiafgift (momsloven) [LF] LF No 124, 1993/94 [government bill] (Den.). LF No 124, 1993/94 (Den.). Folketingstidende [FT] [Official publication of the Danish Parliament] Skriftlig fremsættelse of LF 124 of December 8, 1993, p. 3356 [written introduction of a bill] (Den.); and LF No 124, 1993/94 (Den.). Skatteministeriet [Danish Ministry of Taxation]: Rapport om Momsloven og 6. momsdirektiv, July 2001 [working group report] (Den.). LF No 124, 1993/94 (Den.).
From the
The stated purposes of the Danish VAT grouping scheme do not seem to be aligned with the purposes of the EU VAT grouping scheme (see Section 5), which should be the model for Denmark’s implementation of its VAT grouping scheme. Denmark has not explicitly emphasized the purposes of administrative simplification, combating tax abuse or avoidance, or fiscal competition. Of course, these purposes may indirectly have been part of the considerations, but they are not expressly stated in the
Mirroring the criticism of Norway’s 85% rule (see Section 7.1), there has been a discussion in Denmark about the legal reasons for the 100% rule. It has been argued that the 100% rule is disproportionate, as it is far stricter than the EU rule Eskildsen (2011); Brandt (2001); Dekov (1995); Hansen (1994). Presumably, the reason for the 100% rule is to combat avoidance, as with Norway’s 85% rule (see Section 7.1), but this is not directly stated in the proposal for the rules. LF No 124, 1993/94 (Den.).
It is interesting that both Denmark and Sweden (see Section 7.3) paid great attention to supporting the financial sector through their VAT grouping schemes. This shows that there was strong political support for the financial sector at the time of the introduction of the VAT grouping schemes, with fiscal competition implications mostly on a national level and also on an EU level in the situation of Sweden. These issues were directly addressed by Sweden (see Section 7.3) but not by Denmark.
As opposed to the Norwegian and Danish rules, the Swedish rules on VAT grouping contain many detailed provisions. The Swedish rules are in Chapter 6a of the Swedish VAT Act, Mervärdesskattelagen [ML] [VAT Act] 6 a Chap. 1-7 §§. (SFS 1994:2000) (Swed.).
The main rule is in Chapter 6a, Paragraph 1, of the Swedish VAT Act: Case C-480/10 “For the purposes of the application of the provisions of this Law, two or more economic entities may, in the circumstances stated in this chapter, be regarded as a single economic entity (VAT group), and the activity exercised by the VAT group may be regarded as a single activity.”
However, the right to form a VAT group is restricted to groups of economic entities, primarily VAT exempted entities in the financial and insurance sectors; ML 3 Chap. §§ 9-10 (Swed.). Case C-480/10 “Only the following may be part of a VAT group:
economic entities, placed under the surveillance of the finance inspectorate which exercise an activity which is exempt because the turnover from that activity is exempt under Paragraph 9 or Paragraph 10 of Chapter 3 economic entities whose main purpose is to deliver goods or provide services to the economic entities referred to in subparagraph 1 above, or economic entities which are commission agents and principals, and which have a commission link such as that referred to in Chapter 36 of the law on income tax (1999:1229).”
The rationale for restricting VAT grouping primarily to the financial and insurance sectors is stated in the Lag om ändring i mervärdesskattelagen (1994:200) [Amendment to VAT Act]. (SFS 1998:346) (Swed.). Proposition [Prop.] 1997/98:148 Gruppregistrering i mervärdesskattesystemet, m.m. [government bill] (Swed.); and Departementsserien [Ds] 1997:80 Gruppregistrering av finansiella företag [Ministry Publications Series] (Swed.). Prop. 1997/98:148, p. 22 (Swed.); and Ds 1997:80, p. 22 (Swed.).
In other words, the aim of the rules on VAT grouping was to enable business entities in a financial group that performs VAT-exempt financial activities to avoid paying nondeductible input VAT on purchases from other entities in the group Holmlund and Sundberg (2014); Kristoffersson (2009). Prop. 1997/98:148, pp. 1 and 94 (Swed.); and Ds 1997:80, p. 3 (Swed.); Promemoria RSV Dnr. 9115-98/900 om gruppregistrering enligt 6 a Chap. mervärdesskattelagen (1994:200),ML [Report from Ministry of Finance] (Swed.); betänkande [bet.] 1997/98:SkU29 Gruppregistrering i mervärdesskattesystemet [Committee Report] (Swed.); and Rättslig vägledning:Mervärdesskatt [RV] 2016Mervärdesskattegrupp [Legal Guidelines] (Swed.). Prop. 1997/98:148, p. 94 (Swed.). Prop. 1997/98:148, pp. 27 and 30 (Swed.); Case C-480/10
Another purpose of VAT grouping stated in the Prop. 1997/98:148, pp. 36 and 69 (Swed.).
In contrast to the Danish and Norwegian rules, the Swedish rules include several specific rules to prevent abuse and avoidance, such as
The chosen administrative head of the VAT group for VAT purposes ( ML 6 a Chap. § 4 (Swed.). The tax authorities shall decide on formation of, changes to, or termination of VAT group registration upon the request of the parties involved, provided there is no special reason not to do so. ML 6 a Chap. § 6 (Swed.). If the conditions for VAT group registration have ceased to exist, or for any other special reason, the tax authorities may terminate a VAT group registration on their own initiative. ML 6 a Chap. § 6 (Swed.).
Hence, the tax authorities can decide on the formation of a VAT group, the admission of new members to a VAT group, the withdrawal of members from a VAT group, a change of the administrative head of a VAT group, and the termination of a VAT group. ML 6 a Chap. § 5 (Swed.).
There is guidance on the meaning of Prop. 1997/98:148, p. 73 (Swed.); and Ds 1997:80 (Swed.), pp. 84-85. RV 2016 Mervärdesskattegrupp (Swed.).
In its rationale for its VAT grouping scheme, Sweden has focused on both fiscal competition (particularly within the financial and insurance sectors) and tax avoidance and evasion. This is quite similar to Norway (see Section 7.1) but differs from the Danish rationale, which does not directly address the aspects of tax avoidance and fiscal competition (see Section 7.2). It can be concluded that there are very different rationales for the Nordic VAT grouping schemes and significant differences as to the weighting given to tax avoidance and fiscal competition, which will be demonstrated in practice (see Section 8). The next section discusses the effects of the different national rationales on the analysis of tax avoidance and fiscal competition in the Nordic VAT grouping schemes.
On the basis of the examination of the different national rationales for the VAT grouping schemes in Norway (see Section 7.1), Denmark (see Section 7.2), and Sweden (see Section 7.3), as well as the EU rules that are only relevant for Denmark and Sweden (see Section 5), the further effects of the different rationales must be considered.
First, the different national rationales will affect opinions on whether or not there is tax avoidance in a concrete situation, as national differences in the underlying rationales inevitably influence opinions about tax avoidance in concrete cases.
In Sweden, the special anti-avoidance rules in the rules on VAT grouping only apply if there is
Some of the same things can be said about Denmark, where the rationale for the VAT grouping scheme was to relieve groups of companies from paying VAT on internal transactions (see Section 7.2). Thus, the mere motivation of avoiding paying VAT, for example, by reducing direct or indirect VAT costs, does not in itself constitute tax avoidance in the context of the rules on VAT grouping Vyncke (2007).
There is the same picture in Norway where a VAT group’s intention of avoiding paying VAT on internal supplies within the group is not in itself considered to be tax avoidance or abuse Gjems-Onstad and Kildal (2013); Bråthen
Consequently, for conduct to constitute tax avoidance or abuse in the area of VAT grouping, it must go beyond the legitimate purposes of VAT grouping schemes Doesum
Reflecting the high threshold for conduct to constitute tax avoidance in Sweden, from a Norwegian point of view, Ole Gjems-Onstad and Tor S. Kildal have argued that the threshold for a finding of VAT avoidance should be high, given that the VAT system is a self-declaration system imposing comprehensive obligations on taxable persons; this presupposes that the rules are foreseeable and clear Gjems-Onstad and Kildal (2013).
The above findings on tax avoidance and fiscal competition are based on the analyses of the different national rationales for the Nordic VAT grouping schemes, which must be taken into account in the integrated contextual and teleological part of the analysis of the risks of tax avoidance and fiscal competition that follows.
This section contains analyses of national case law and administrative practice in Denmark, Norway, and Sweden, starting with the most substantial cases that show clear signs of tax avoidance or fiscal competition connected with VAT grouping.
In Danish administrative practice, recently, there has been an increased focus on the aspects of tax abuse and tax avoidance in connection with the use of VAT groups leading to an otherwise VATable transaction being not subject to VAT. The most relevant cases involving aspects of tax avoidance and fiscal competition are analyzed, first in relation to real property (see Section 8.1.1) and then in relation to IT systems (see Section 8.1.2).
A published binding ruling of the Danish Tax Council, The Danish Tax Council ( Skatterådet [SR] [Tax Council] August 10, 2015, SKM2015.530.SR (Den.). A similar VAT group model in relation to transfer of specific tangible or intangible property was described by Swinkels (2010).
In 2011, Denmark introduced VAT liability for real property transactions, Lov om ændring af lov om merværdiafgift og lov om afgift af lønsum m.v. [Ændring af momsloven] [Amendment to VAT Act]. (Lov No 520 of June 12, 2009) (Den.).
The Tax Council did not directly determine that the VAT group was an abuse of the VAT grouping scheme, but it strongly indicated that the model would probably be considered as abuse based on the facts. Following the Council’s ruling, the administrative practice on special VAT groups for real property will probably be stricter.
The administrative practice will probably be stricter because the applicant who applied for the binding ruling in SKM2015.530.SR relied unsuccessfully on two previously unpublished binding rulings of the Danish tax authorities (SKAT) on a similar VAT group, given in 2013. According to the applicant, SKAT accepted the VAT group in the unpublished cases without expressing concern about VAT abuse. SKM2015.530.SR suggests that the Tax Council focuses more than SKAT on the risks of VAT abuse and avoidance of paying VAT in VAT groups involved in transactions of real property. In Momskontaktudvalget’s [VAT Contact Committee] minutes of March 7, 2016, Section 9 (Den.), the Danish tax authorities replied in relation to SKM2015.530.SR that SKAT in some of those cases had seen indications of abuse of the VAT rules.
The VAT group model used in SKM2015.530.SR was as follows. Company S1, the applicant for the binding ruling, owned real property in the form of building sites. (Transactions involving building sites are subject to Danish VAT). ML § 13, sec. 1, subsec. 9 (Den.).
Among other things, the applicant’s stated purpose for the incorporation of the development companies was to limit and share the risks of the site development of the individual building sites with the co-applicant for the binding ruling, company S2, which was an external investor.
The next step was to form a new holding company with a share exchange between S1 and the new subsidiaries, after which the holding company would apply to become a member of the VAT group. This would be followed by the transfer of 50% of the share capital in the holding company to S2 or an existing wholly owned subsidiary of S2. S1 could no longer be part of the VAT group because of the requirement for 100% ownership (see Section 7.2). The site development would then be carried out by the development companies, and the VAT group consisting of the holding company and the development companies would at least be maintained during the whole of the site development phase.
Among other things, the applicant’s stated purpose with the holding company was to join forces on the building project, secure S1’s influence in the planning and site development phase, and share the commercial risks of the site development and subsequent sale between S1 and S2. In the longer term, the purpose of S1’s participation was to dispose of the building sites.
In considering this, the Danish Tax Council did not directly answer to the applicant’s key question as to whether, as a whole, the model would be accepted by the tax authorities. The reason for this was that, legally speaking, an application for VAT grouping is an application for a license, and this is outside the scope of the binding ruling system. SFL § 21, sec. 3 (Den.).
From a taxpayer’s point of view, and considering the general principle of equal treatment, it may seem inconsistent that, as claimed by the applicant, a few years ago, SKAT had accepted similar VAT group models in two unpublished binding rulings, thereby ignoring the license question. However, the license question is not relevant for the purpose of this article; what is relevant is the Tax Council’s opinion on VAT abuse and avoidance in connection with VAT groups.
The Tax Council’s clear opinion was expressed several times in its answer to the applicant’s request for a binding ruling. First, the Council determined that the transfer of the building sites to the development companies after the establishment of the VAT group resulted in S1 not paying VAT on the transaction. As the subsequent sale of the shares later would be exempt from VAT, ML § 13, sec. 1, subsec. 11, litra e (Den.). VAT-taxable supplies are supplies of new buildings or building sites. ML § 13, sec. 1, subsec. 9 (Den.).
The Tax Council also pointed out that there was no commercial purpose behind making the transfer of the building sites a contribution in kind after the incorporation of the development companies, and the Council considered that the only reason for this was to avoid paying VAT, thereby the Council dismissed the arguments for commercial reasons brought forward by the applicant. The Council concluded that a VAT group should not affect the transaction. In a later case, SKM2015.707.SR, the Danish Tax Council stated that there would be no basis for considering aspects of avoidance of the VAT grouping rules in relation to a sale of real property within a VAT group regardless of the intention to sell the shares afterwards as the sale would be VAT-exempt inside as well as outside a VAT group.
While it was not explicitly established in SKM2015.530.SR that the VAT group model was unacceptable on the ground that it constitutes VAT abuse, the case will still have a powerful dissuasive effect. Presumably, taxpayers will be unwilling to risk being associated with VAT abuse by using an uncertain VAT group model when the Tax Council has given such a clear public opinion.
The timing of the establishment of the VAT group was also an element in SKM2015.530.SR. The EU Commission has expressed the view that Article 11, second paragraph, of the VAT Directive allows for measures aimed at ensuring that no unjustified advantage is derived from a VAT grouping scheme (see Section 5), for example, by setting a minimum duration for VAT groups. COM(2009) 325 final of July 2, 2009, p. 11.
Another question in SKM2015.530.SR was whether the refusal of an application for a VAT grouping necessitated a legal basis in the form of specific Danish anti-avoidance rules, as in Sweden (see Section 7.3), or whether the general VAT anti-abuse doctrine derived from the EU case law, including the Case C-255/02
In this regard, the Danish Tax Council noted that attaining a better VAT position by applying the VAT grouping rules is not in itself an abuse of the rules. It is only insofar as the general EU VAT anti-abuse doctrine is effective on the case that the application of the VAT grouping rules can constitute abuse. According to the Tax Council, given the principle of interpretation of national laws so as to be consistent with the EU legislation and given the principle of the supremacy of the EU law and the EU case law, the EU VAT anti-abuse clause will be applicable to the formation of VAT groups. In the same way, an existing VAT group can be dissolved with effect for existing arrangements, provided it can be shown that there has been VAT abuse.
The present author agrees with the arguments of the Tax Council in SKM2015.530.SR (see Section 5). Where abuse or avoidance can be established, taxpayers do not have a right to form a VAT group even if all the objective conditions are fulfilled. In any event, it may be quicker and more effective to have specific anti-avoidance rules similar to the Swedish rules (see Section 7.3) than to rely on the general EU VAT anti-abuse doctrine and the inherent formal, substantive, and evidential requirements.
There is no example of a VAT group model similar to that in SKM2015.530.SR, in the published case law, administrative practice, or legal literature in Norway or Sweden. Thus this is not a present problem in Sweden or Norway, but it may become a problem, not only for the Nordic countries but also for other countries with VAT grouping schemes similar to the VAT group model in Denmark.
Another area in which the Danish tax authorities have recently observed tax avoidance is in relation to VAT groups and IT systems. New VAT rules were adopted on this in 2014 Lov om ændring af momsloven og forskellige andre love [Ændring af momsloven] [Amendment to VAT Act]. (Lov No 554 of June 2, 2014) (Den.). Lovforslag [LF] LF No 153, 2013-14, Section 3.3.1.2 [government bill] (Den.).
The VAT group model for IT systems is as follows. A company needs a new IT system. The company has primarily VAT-exempt activities and thus has no right or very little right to make VAT deductions. If the company pays for the development of a system by another company, the first company would have no right or only a limited right to deduct input VAT. Instead, the company forms a subsidiary that develops or purchases the system and leases it to the parent company. As the rental is liable to VAT, the subsidiary can deduct input VAT. After a short period, a VAT grouping of the parent company and the subsidiary is applied for, after which the rental will become an internal transaction and not subject to VAT. By using this model, the company obtains a right to deduct almost all the input VAT on the purchase of the IT services. A similar VAT grouping model in relation to leasing of busses was described by Engers (1996) and in relation to purchase of expensive goods, for example, medical equipment or customized software, by Swinkels (2005, 2010).
The proposal for the new rules suggested including IT services (with similar characteristics to ordinary capital goods such as long-term use and depreciation) in the definition of the capital goods scheme and the five-year adjustment period. ML §§ 43-44 (Den.).
Ole Gjems-Onstad and Tor S. Kildal point out that the rules on VAT grouping are one of the two sets of rules in which the application of the Norwegian general anti-avoidance clause (see Section 4.1) may be most relevant in the area of VAT Gjems-Onstad (2016); Gjems-Onstad and Kildal (2013); Gjems-Onstad (2009). NOU 2016:5, p. 72 (Nor.) mentions VAT grouping as an example where the proposed general anti-avoidance clause would be applicable in order to prevent practice aiming at obtaining unintended VAT advantages.
Ole Gjems-Onstad and Tor S. Kildal give the example of a hypothetical transactional relationship in which the seller is a taxable person under the Norwegian VAT Act and the customer is not registered under the VAT Act and has no right to deduct VAT Gjems-Onstad and Kildal (2013). If a seller and a customer enter into a joint ownership arrangement and form a VAT group, the seller’s supplies to the customer will be outside the scope of VAT. In the opinion of Gjems-Onstad and Kildal, tax avoidance could be shown to exist if it can be demonstrated that ownership is a reversed customer relationship that serves no purpose other than avoiding VAT. As stated by these authors, the reason for this is that a VAT grouping is intended to enable avoidance of payment of VAT in real internal group relations and where there is genuine joint ownership. A VAT grouping is not intended to be used in an ordinary buying and selling relationship Gjems-Onstad(2009); Bråthen Several VAT avoidance schemes concerning “customers” not entitled to deduct input VAT or its right to deduct input VAT are described by Swinkels (2005, 2010).
The Norwegian legal literature refer to a media report of a case Further references to the case from the media have not been found. Another VAT avoidance scheme involving the formation of a joint venture, for example, regarding construction of buildings, exploitation of intangible assets, development of customised software or provision of cleaning staff in the health care and education sectors, is described by Swinkels (2010).
If these facts are correct, Ole Gjems-Onstad and Tor S. Kildal say that the situation need not be treated as tax avoidance, but merely treated on the basis that the cash flow had not been allocated correctly. Thus, these authors suggest a solution based on the reality of transactions and not one based on the application of the general anti-avoidance clause in Norwegian law Gjems-Onstad and Kildal (2013); Gjems-Onstad
Gisle Bråthen, Erik Frøystad, and Ole Martin Haugan are of the opinion that the avoidance of payment of VAT seemed to be almost the sole purpose of the incorporation of the jointly owned company and the formation of the VAT group Bråthen
From this author’s point of view, and taking into account the Danish practice (see Section 8.1), such a formation of a VAT group between a seller and a customer was undeniably inconsistent with the reality of the arrangement, and the group should be disregarded for VAT purposes on the ground of tax abuse or avoidance. However, in future, the result will depend on the facts and whether the Norwegian criteria for constituting abuse of the VAT grouping rules have been fulfilled, or the case would be decided on pro forma (see Section 4.1.2).
Another area of VAT grouping in which potential tax avoidance may be seen concerns the criteria for “cooperating companies” to be allowed to form a Norwegian VAT group (see Section 7.1). A letter from the Norwegian Directorate of Taxes of November 18, 2008, concerned the right to deduct a company’s purchase of advisory services in connection with buying all the shares in another company in order to register for VAT grouping. Skattedirektoratet’s [Directorate of Taxes] letter of November 18, 2008, to Skatt Nord [USKD-2009-1] (Nor.).
The case gives a discreet indication of potential tax avoidance aspects connected with the criteria for cooperating companies. As such, the criteria for “cooperating companies” may be seen as a tool for testing tax avoidance in connection with VAT groups (see Section 7.1). In this author’s opinion, the cooperative criteria could also be seen merely as a means for examining whether the commercial and organizational conditions for VAT grouping have been objectively fulfilled. In that case, an objective evaluation of the criteria would not include any tax avoidance aspects. To some extent, this is supported by a Swedish case, RÅ 2005 not 106, Regeringsrätten [RR] [Supreme Administrative Court] 2005-06-01, RÅ 2005 not 106
No clear examples of tax avoidance in relation to VAT grouping have been found in Swedish case law, administrative practice, or legal literature. In several places, there is a general comment that VAT groups may be used for tax avoidance purposes, for example, in the
The low risk of a finding of tax avoidance may be because in Sweden VAT groups are primarily used in the financial and insurance sectors, thereby limiting their use to business sectors that are already subject to extensive regulation and state control Swinkels (2010); Alhager (2001). Another reason may be that generally, the high focus on the fiscal competition aspects of VAT groups may have shifted the focus from tax avoidance (see Section 7.3). This suggestion is to some extent supported by Case C-480/10
In Swedish case law, practice, or legal literature, no cases have been found constituting distortion of competition, although fiscal competition issues were part of the discussions in decision No 2129-04 from the Supreme Administrative Court, Regeringsrätten [RR] [Supreme Administrative Court] 2005-09-07, målnummer 2129-04 ML 6 a Chap. 3 § (Swed.).
The main issue in Case C-480/10 RV 2016 Mervärdesskattegrupp (Swed.). Prop. 1997/98:148 (Swed.); and Ds 1997:80 (Swed.).
In 2014, a proposal was made Departementsserien [Ds Fi] 2014 Vissa skattefrågor inför budgetpropositionen för 2015 [Ministry Publications Series the Finance Department] (Swed.). Lagrådsremiss [Proposal to the Council on Legislation] Vissa skattefrågor inför budgetpropositionen för 2015 [Finance Department] (Swed.). Ds Fi 2014 Vissa skattefråor inför budgetpropositionen för 2015, p. 48 (Swed.).
From a Danish point of view, the rules on VAT grouping are naturally associated with the rules on joint income taxation, as some of the functions and legal effects of the VAT and the income tax schemes are superficially similar. For example, both the VAT and the income tax schemes allow group consolidation for VAT and income tax purposes, Selskabsskatteloven [SL] [Corporation Tax Act] §§ 31-31A. (LBKNo 1164 of 06/09/2016) (Den.). ML § 3, sec. 3 (Den.). Den juridiske vejledning 2016-2 [DJV] Section D.A.3.3.1 [Legal Guidelines] (Den.). SL § 31, sec. 6 (Den.). SL § 31, sec. 6 (Den.). ML § 46, sec. 9 (Den.).
My PhD project has demonstrated that there is often a close and quite extensive interaction between VAT law and income tax law in Danish law Elgaard (2016a). It is thus natural to compare VAT grouping with joint income taxation, and this could justify making an in-depth analysis of the two, which could provide useful insights, drawing lessons from VAT grouping and applying them to income tax schemes and vice versa. However, I believe that this idea should not be pursued in the form of a comparative analysis for the following reasons.
The apparent comparability of VAT grouping and joint income taxation becomes less apparent in the context of the Swedish and Norwegian rules on the tax treatment of groups of companies. In contrast to Denmark, which uses a model in which the profits and losses of a group are combined to produce a consolidated computation Parolini (2008), the Swedish rules are based on a model using a
Both the Swedish and the Norwegian rules on group contributions with a right to make deductions Inkomstskattelagen [IL] [Income Tax Law] Chap. 35. (SFS 1999:1229) (Swed.). Lov om skatt av formue og inntekt (skatteloven). Skattlegging av aksjeselskap og allmennaksjeselskap m.v. [Skatteloven] [Tax Act] Chap. 10. (LOV-1999-03-26-14) (Nor.).
This means, from a Nordic perspective, that the fundamental conditions for establishing comparability between VAT grouping and joint income taxation do not exist, primarily because the Swedish and Norwegian joint income taxation schemes differ significantly from the Danish joint income taxation scheme. The apparent similarities between the Danish VAT grouping scheme and the joint income taxation scheme do not exist in Sweden or Norway, because Sweden and Norway do not use a joint income taxation model based on the complete consolidation of a group for income tax purposes.
Martin Jensen concluded his analysis of the “hypothetical analogy” between the rules on VAT grouping and the rules on joint income taxation by clearly stating that the analogy cannot be upheld and that an analogous application of the case law on joint income taxation cannot give guidance in the area of VAT (Jensen (2009), and in the same direction Henkow (2009); Elgaard (2016a). Ole Gjems-Onstad has also made a brief comparison of joint income taxation groups and VAT groups with reference to the fact that in both cases, there is voluntary group registration, enabling several legal persons to be treated as a single taxable person. However, he stresses that the rules must be presumed to be different in nature Gjems-Onstad (2012). See also Parolini
The above considerations mean that there is no basis for making a comparative analysis of VAT grouping schemes and joint income taxation schemes that could reasonably prove useful for further research or for this article. However, a purely national analysis of the VAT grouping scheme compared to the joint income taxation scheme may be relevant for other purposes than this.
On the basis of a comparative analysis of VAT grouping schemes in Denmark, Norway, and Sweden, it can be concluded that, both in theory and in practice, there is a real risk of tax abuse and avoidance connected with the use of various VAT group models. The risk is especially clear in Denmark in the areas of real property and IT systems (see Section 8.1) and, in some cases, in Norway in connection with converting seller/customer relationships into VAT groups (see Section 8.2).
Denmark and Norway have added some minor special anti-avoidance measures to the rules on VAT groups in the form of ownership percentage rules (see Sections 7.1 and 7.2). This is probably due to the relative de-emphasizing of tax abuse and tax avoidance in the
In contrast to Denmark and Norway, Sweden has implemented detailed rules to prevent abuse and avoidance as an integral part of its rules on VAT grouping (see Section 7.3). This implies that Sweden has focused on combating tax abuse and avoidance from the start. This is supported by the
However, the positive effect must be weighed against fiscal competition aspects, as restricting of the scope of VAT grouping to the financial and insurance sectors raises problems of distortion of competition in relation to businesses outside these sectors competing on the same market that are not eligible for the benefits of VAT grouping. National regulation aiming at compensating for the lack of access to VAT grouping are not included in the article, as this is outside the scope of the research purpose of the article (see Section 2.2), and it would be too extensive to include in the article.
Norway actively dealt with competition issues in the Same viewpoint has been raised regarding the 100% rule in Denmark Westberg (1994).
In Denmark, fiscal competition has not received much attention either during the legislative process or in practice (see Sections 7.2 and 8.1). The competition aspect was unquestionably an important reason for introducing the Danish VAT grouping scheme, but this was not directly expressed in the
While this comparative analysis of the VAT grouping schemes in the Nordic countries is extensive, it is impossible to cover all aspects in depth within the scope of this article. The findings of this article are important, as the article has shown that in all three Nordic countries, there are in fact problems and risks related to tax avoidance and distortion of competition. This article also demonstrates that aspects of tax avoidance and fiscal competition are interconnected and that it is necessary to weigh them against each other in relation to VAT grouping schemes.