Former VAT Group member responsible for post-exit adjustments

Scope of adjustments

The Directive specifically states that the adjustments include:

• Reductions in the value of taxable supplies previously reported by the VAT Group (for example, credit notes or post-sale price reductions); and
• Reductions in taxable expenses where input VAT had previously been recovered by the VAT Group (for example, supplier credit notes, rebates or purchase price adjustments).

KPMG comment:

Although the Directive expressly refers to reductions in taxable supplies and taxable expenses, the underlying principle appears to be that adjustments should follow the entity whose original transactions gave rise to the adjustment.

Businesses should therefore carefully assess whether the events are indeed affecting historical transactions that require corresponding VAT adjustments  or should be considered as new events that should be reported by an entity on an individual basis.

Record-keeping obligations

The Directive requires the registrant to maintain sufficient supporting documentation demonstrating that the adjustment relates to taxable supplies or taxable expenses that were previously reported in the VAT returns of the former VAT Group.

KPMG comment:

This reinforces the importance of maintaining detailed records following VAT Group restructurings. Businesses should retain documentation that clearly evidences:

• The original VAT Group declaration;
• The entity that undertook the underlying transaction;
• The event giving rise to the adjustment; and
• The methodology adopted in calculating the VAT adjustment.

Maintaining an appropriate audit trail is particularly important where adjustments arise several months or years after a member has exited the VAT Group. Accordingly, the exiting member should continue to monitor subsequent events that may trigger adjustments relating to transactions previously reported by the VAT Group and promptly notify the VAT Group of any such changes, together with all relevant information and supporting documentation, even after it has ceased to be a member.