A major disadvantage of a VAT fiscal unity is that all components are jointly and severally liable for the VAT debts of the fiscal unity. Court of Appeal of ‘s-Hertogenbosch recently ruled that this does not violate European law.
Joint and several liability
The interested party in this case, a BV, had been in a VAT fiscal unity with its parent company (the holding company) since 20 October 2003. The fiscal unity also included 3 sister BVs. In May 2012, these 3 sister BVs went bankrupt. The tax authorities confirmed in a letter that the bankrupt sister-BVs were no longer part of the VAT fiscal unity as of May 2012. From then on, the VAT fiscal unit consisted only of the holding company and the interested party.
In May 2012, the tax authorities imposed VAT retrospective assessments on the fiscal unit for the first and second quarters of 2012. These retrospective assessments concerned VAT on supplies and services provided by the bankrupt sister BVs. The tax collector held the interested party, as part of the VAT tax group, liable for the payment of the additional VAT assessments.
The interested party's argument that the sister BVs were no longer part of the VAT fiscal unity obviously failed. After all, the additional tax assessments related to periods before the fiscal unity was broken up.
Therefore, the interested party diverted to European law. However, the Court concluded that the Dutch rules on VAT fiscal unity are in line with the European VAT Directive. Because a VAT fiscal unity is not a legal person, which the receiver can target, the rules on joint and several liability are in the legislation. And that too is not contrary to European law.
Declaring joint and several liability
In the case described above, there was a letter in which the tax authorities confirmed that the tax unity had ended. This is of great importance. After all, joint and several liability does not end by itself. When breaking up a fiscal unity for VAT purposes, it is essential to cancel the joint and several liability with a letter to the Tax Authorities. If this is not done, the joint and several liability remains in place.
The cancellation of joint and several liability is often forgotten because the VAT fiscal unity does “automatically” end. That is, as soon as the conditions are no longer met. Incidentally, bankruptcy of a member of the fiscal unity does not automatically mean that the fiscal unity is terminated. To do so, all the conditions imposed on the VAT fiscal unity must be assessed in each situation.