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Trial lecture - time and place
Adjudication committee
- Professor Anders Bernhard Mikelsen, University of Oslo (leader)
- Professor Dennis Ramsdahl Jensen, Aarhus University (1. opponent)
- Professor Eleonor Kristoffersson, Örebro University (2. opponent)
Chair of defence
Vice Dean Geir Stenseth
Supervisors
- Professor em. Frederik Zimmer
Summary
Value Added Tax and Groups of Companies
The dissertation deals with legal issues related to value added tax (VAT) that may arise when groups of companies are involved in taxable transactions. In our context, the term «group of companies» refers to a structure where one legal entity (the parent company) has controlling influence over one or more companies (subsidiaries). The research method is mainly legal dogmatic and related to Norwegian law.
In practice, groups of companies can occur in various forms. In their simplest form, they are structured with only one parent company and one subsidiary, but they can also form a conglomerate of many, in some cases over a hundred, companies. Their geographical location can also vary. The group can be local, operating only in Norway, or international, conducting activities in various countries. Furthermore, it may be diversified in business, i.e. operating in different industrial areas, or it may focus on specific industries, such as «real estate groups», «energy groups», «financial groups» or «media groups». The longevity of a group also varies. Some groups exist for decades, perhaps generations, while others are dynamic and short-term oriented, such as when an investment company purchases all the shares in a company with the intention of selling after 4-5 years, or when a subsidiary is established solely to sell a real estate property.
A group of companies may, like other market actors, be faced with issues related to VAT law, such as whether a transaction is taxable, exempt or zero-rated, which tax rate to apply or whether input VAT can be deducted. The group structure itself does not bring these issues into a different focus. Regardless of how uniformly the group functions, each individual company must be treated as a single legal entity when applying the VAT Act. It is the individual company, not the group, that buys, uses and sells goods and services, conducts business etc. At the same time, the closeness between the companies and the fact that the group functions as a single unit, may raise typically and peculiar issues for groups. These issues are the subject of the dissertation.
Organizational neutrality
The VAT system should ideally function neutrally in the sense that it should not influence market behaviour. This also includes the business' choice of organisational form, often being referred to as «organizational neutrality». In our context, it is particularly the choice between operating as a single company and as a group of companies that is of interest. The dissertation identifies areas where the principle of organizational neutrality is being challenged. Conducting business within a group involves a range of disadvantages and opportunities for adaptation that are not relevant when business is conducted within just one company. The possibility of jointly registering a group of companies in the VAT register can be seen as the legislator's attempt to level the playing field between corporate groups and standalone companies, i.e. by the fact that no VAT shall be calculated on transactions between companies within a VAT group. The Supreme Court's restrictive stance on the right to deduct input VAT on the purchase and sale of shares in companies that are or will be jointly registered, raises, however, the question of whether the scheme today functions in line with its purpose. Another scheme of interest is the «Circular 40 Method», which is a cost-sharing arrangement originally intended for co-ownerships. A conclusion is that the method also may be used by groups of companies. Certain limitations in the scheme may, however, exclude some forms of acquisitions from it, potentially leading to cumulative effects.
Adjustments for VAT purposes
A group of companies may also be in a position to make adjustments for VAT purposes. The thesis shows how joint registration can be used to achieve benefits in relation to VAT, inter alia through the establishment of exceptional ownership structures or by moving companies in and out of a VAT group. Practice further shows that corporate groups in some cases also may «split up» their own products to save VAT. A question being explored is whether such arrangements can be upheld for VAT purposes, and particularly which role the general anti-avoidance rule plays in this context. Furthermore, companies within a group may price products delivered among themselves too low, resulting in a lower VAT calculation base than would be the case between independent parties. The dissertation addresses the arm's length rule of the VAT Act, which is introduced to counteract such effects. A conclusion is that the OECD transfer pricing guidelines, which apply in the area of direct tax law, must also be applicable in calculating arm's length prices under the VAT Act.
In general, the thesis addresses a range of specific questions related to groups which have more or less been debated in practice, but to which a clear resolution has not necessarily been found. What are the conditions for a parent company to be considered as a taxable person? How should the rules regarding pre-registration, the right to deduct VAT on purchases made before VAT registration and the partial deduction of input VAT, be applied in cases of joint registration? Concepts as re-invoicing and disbursement (outlay) are also being analysed. Furthermore, share and tax law-based transactions that typically take place within a group of companies, such as group contributions, dividends, share subscriptions, mergers and demergers, are addressed. Such transactions are difficult to assess as the VAT Act only recognizes the transactions sale, self-supply and import.