FTA Publishes additional technical guide on Tax Groups
The Federal Tax Authority (FTA) has published a technical guide on tax groups. This guide addresses the technical aspects of tax grouping, and is separate to the published tax groups user guide, which deals with the administrative elements of establishing a tax group.
The new guide provides detailed guidance on tax grouping, including the VAT implications of entering into a tax groups. The main topics are the eligibility of taxable persons to form a tax group, including the business criteria, legal person criteria, establishment criteria, and related parties and control criteria.
The guide also provided insight on how to amend or disband a tax group, and circumstances under which the FTA may reject an application for grouping, forcibly disband a tax group, or force related parties into a tax group for anti-avoidance purposes.
Below are some of the reasons the FTA would refuse an application (or forcibly disband a tax group):
· the applicants do not meet the criteria to be grouped; or
· the FTA considers there is a serious risk of tax evasion; or
· there is a significant reduction in the overall tax due to the FTA will arise as a result of the change; or
· there is a significant risk that an increase to the administrative burden on the FTA will arise as a result of the change.
The guide states that generally it is the policy of the FTA to allow tax grouping, but refusal will usually occur where:
· there are insufficient transactions between the proposed tax group members, i.e. the proposed tax group members are not meaningfully interacting with each other;
· the proposed tax group will be difficult for the FTA to audit because its structure results in no internal commonality of audit;
· the only benefit to the proposed tax group will be a cash offset benefit; and
· the proposed tax group would place an additional administrative burden on the FTA, including but not limited to the reasons outlined above.
The guide should be reviewed by taxable persons assessing forming a tax group, but also those currently in a tax group in order to make sure they are aware of their ongoing responsibilities.