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VAT practical manual 2021.

Subjective requirements

Entrepreneurs or professionals who are part of a group of entities can apply the special regime of the group of entities. A group of entities is considered to be one formed by a dominant entity and its dependent entities, which are firmly linked to each other in the financial, economic and organizational spheres, provided that the headquarters of economic activity or permanent establishments of each and every one of them reside in the territory of application of the tax.

Linking:

  • A "financial link" will be considered to exist when the dominant entity, through a participation of more than 50% in the capital or voting rights of the group entities, has effective control over them.

  • "Economic linkage" will be considered to exist when the group entities carry out the same economic activity or when, by carrying out different activities, they are complementary or contribute to their realization.

  • "Organizational linkage" will be considered to exist when there is a common address in the group entities.

    It shall be understood, unless there is proof to the contrary, that a parent company that fulfills the requirements of a financial relationship also fulfills the requirements of a financial and organisational relationship.

No business or professional can simultaneously form part of more than one group of companies.

A dominant entity is considered one that meets the following requirements:

  1. It has its own legal personality. The permanent establishments located in the tax's territory of application can also have the condition of parent company.

  2. That has effective control over the group entities, through a direct or indirect participation of more than 50 percent, in the capital or voting rights.

  3. Said stake must be maintained throughout the calendar year.

  4. That is not dependent on any other entity established in the territory of application of the tax that meets the requirements to be considered dominant.

As long as these requirements are met, a commercial company that does not act as an entrepreneur or professional may also be considered a dominant entity.

A dependent entity is considered to be one that is established in the territory of application of the tax and in which the dominant entity has a direct or indirect participation of at least 50% of the capital. Said stake must be maintained throughout the calendar year.

Dependent entities that lose such status are excluded from the group of entities with effect from the liquidation period in which such circumstance occurs.