What is a VAT Group and how to identify it via APIs

When Italian companies are linked by common interests and meet certain requirements, they can form a VAT Group. In this way, they become a single taxable entity answering to the same VAT number, and transactions carried out within the Group are not relevant for Value Added Tax purposes.

When invoicing, however, the different entities participating in the group are also identified by their tax identification number, which is different for each business: this complexity can lead to the need to identify when a VAT identification number belongs to a VAT Group or when a business is part of a particular group.

VAT Group: What is it?

The VAT Group is an institution of Italian legislation that allows several companies linked by common interests to create a group with a unique VAT number, which is considered as a single entity for VAT purposes.

Introduced in the 2018 Budget Law (L. 205/2017), the VAT Group can be formed by taxable persons established on Italian territory who are linked by financial, economic and organisational ties.

VAT group and VAT group: the differences

Technically, VAT Group and VAT Group are very different institutions: while the VAT Group is a taxable entity that encompasses several businesses linked by common interests, the expression VAT Group refers to the unitary settlement of VAT, but does not imply that the participating entities are considered as a single taxpayer for VAT purposes.

The two expressions are often used synonymously, so it is not uncommon to hear VAT grouping used to refer to a VAT group and vice versa. In the following, we will refer exclusively to the VAT group, understood as the union of several businesses under the same VAT number.

VAT group: requirements

In order to form a VAT group, it is necessary for the companies participating in the group to be established in Italy (and directly identified for VAT purposes in Italy). It is also necessary that the companies in the group are linked at the same time by ties of a financial nature:

• financial: there must be a direct or indirect controlling relationship between the various entities;
• economic: the subjects must carry out the same main activity, or complementary and interdependent activities;
• organisational: the decision-making bodies of the participating entities must act in a coordinated manner.

Excluded from the option are pure holding companies and organisations of Italian companies abroad, as well as entities subject to judicial seizure, bankruptcy proceedings or ordinary liquidation.

VAT grouping: how does it work?

The VAT Group rules allow interrelated companies to be considered as a single autonomous taxable entity, with a VAT number and registration in the VIES, which encloses the other participating VAT entities.

When a VAT Group is formed, therefore:

• intra-group supplies of goods and services are no longer relevant for VAT purposes;
• transactions carried out by a member are deemed to be carried out by the VAT group;
• transactions carried out by a third party vis-à-vis a member of the group are deemed to be carried out vis-à-vis the group.

Each member company keeps its own tax code. From the moment of establishment, the VAT Group must be operational for at least three years.

VAT Group: electronic invoicing

Each company belonging to a VAT Group, as we have seen, has a group VAT number and an individual tax code, which must be indicated on the electronic invoice. This is a complexity that must be managed upstream, especially when many tax documents are issued and automation tools are used.

In fact, the VAT number and the tax code of Italian companies almost always coincide, and very often one tends to take the VAT number as the only useful reference, which is not possible for VAT Groups, as it does not allow one to identify the party carrying out the transaction.

The API for invoicing VAT Groups

Openapi's VAT Group service was created precisely to meet this need: the service allows you, via API, to check in real time whether a VAT number belongs to a VAT group, and to determine whether an individual company is part of a given group.

If only the VAT ID number is used as the request parameter, the service verifies the existence of that ID number and determines whether it is associated with a group. If, on the other hand, both the VAT ID number and the company's tax code are used as the request parameter, the service also verifies whether the company belongs to the VAT group associated with the VAT ID number, thus eliminating possible errors when e-invoicing to VAT groups such as banks or energy companies.