Inability to consider a city council as dominant entity of a VAT group
Binding tax ruling V0986-15 issued by the Spanish General Tax Directorate (DGT) on March 27, 2015.
This query is considering that a city council which owns 50 percent of the capital of a business entity, aimed to the waste collection service, qualifies for the special VAT grouping regime as the dominant entity in the same in which the investee was the subsidiary.
It must be mentioned that, although at first seemed to be enforceable the quality of being an entrepreneur or professional acting as such, the current Spanish legislation allows corporations do not act as entrepreneurs or professionals, be considered as dominant entity of a VAT grouping provided they meet all the other requirements.
In this sense Article 163.quinqies of Spanish VAT Law states:
Article 163.quinqies. Subjective requirements of the special VAT grouping regime
One. They may apply the special regime for groups of entities entrepreneurs and professionals who are part of a group of entities. It is considered as a group of companies formed by a dominant entity and its subsidiaries that are closely linked in financial, economic order and organization, in the terms that develop regulations, provided that the locations of economic activity or permanent establishments of every one of them situated in the territory of application of the tax.
No entrepreneur or professional can simultaneously sit on more than one group of entities.
Two. It is considered that parent company that meets the following requirements:
a) To have legal personality. However, the permanent establishments located in the territory of application of the tax will have the status of parent company in respect of entities whose interests are affected to such establishments, provided the other requirements of this section are met.
b) Having effective control over the group’s entities through a direct or indirect holding of more than 50 percent in the capital or voting rights of the same.
c) That such participation is maintained throughout the calendar year.
d) Is not dependent on any other entity established in the Spanish VAT territory that met the requirements to be considered as dominant.
Notwithstanding the provisions of paragraph One above, the corporations do not act as entrepreneurs or professionals, can be regarded as the dominant entity, provided they meet the above requirements.
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However, although the new regulations of the Spanish VAT grouping regime contained in the Spanish VAT Law allows a corporation that does not act as an entrepreneur or professional can be regarded as the dominant entity, however, the legislator has not extended this possibility to Public administration as the City council.
Consequently, the General Tax Directorate estimates that the City council cannot apply for the special regime for groups of entities.
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