The FTA has issued Directive on Tax Transactions No. 2 of 2026, and while it runs to only a few clauses, it closes a real gap. When a business leaves a VAT group but stays registered for VAT in its own right, who accounts for an adjustment that relates to a transaction made while it was still inside the group? The Directive gives a clear answer, effective 1 August 2026.
The situation it addresses
VAT groups file a single return. Supplies made and expenses incurred by any member are declared through the group. When a member leaves the group but remains a registrant, a later event can require an adjustment to one of those earlier transactions. A price reduction, a credit note, or a reversal of input tax previously recovered are the common triggers. The question, until now, was practical. Does that adjustment belong to the group that originally reported the transaction, or to the member that has since left?
What the Directive says
The adjustment sits with the member that left. If a person ceases to be part of a VAT group but stays registered, and an adjustment arises on a taxable supply it made or a taxable expense it incurred before leaving, that person makes the adjustment in its own tax returns, provided the supply or expense was previously declared in the group's returns. This follows the VAT Law and its Executive Regulation.
The Directive is specific about what counts as an adjustment for this purpose. It covers two cases:
- A reduction in the value of a taxable supply that was previously declared in the group's returns.
- A reduction in the value of a taxable expense for which input tax was previously recovered through the group's returns.
The effect is symmetrical. Output tax that was overstated, or input tax that was recovered in excess, is corrected on the return of the entity that now holds the registration, even though the original transaction was reported by the group.
The records you need to keep
The Directive adds one obligation that is easy to overlook in a restructuring. The registrant must retain the supporting documents and records that show the adjustment relates to a supply or expense previously declared in the group's returns. In practice that means the departing member needs access to the group's historical VAT records for the transactions it was responsible for, and a clear trail linking each later adjustment back to the original entry. A member that leaves a group without taking that history with it will struggle to evidence an adjustment it is now required to make.
What to do about it
For any group restructuring its VAT grouping, adding or removing members, the practical steps are narrow but worth building into the exit:
- Before a member leaves, map the open items. Identify supplies and expenses it reported through the group that could still give rise to an adjustment, such as contracts with retrospective pricing, outstanding credit notes, or expenses where recovery could reverse.
- Hand over the records. Make sure the departing member leaves with the VAT documentation for its own transactions, not just a closing balance.
- Set the responsibility in writing. Where an agreement governs the exit, state clearly that later adjustments on the member's own transactions move with it, so nobody assumes the group will still handle them.
The Directive takes effect on 1 August 2026. It does not change how much tax is due. It settles who reports the correction, and it places the record keeping obligation on the member that left. For most groups that is a small process point. For a group in the middle of a reorganisation, it is one worth getting right before the member walks out the door.
This article is general commentary on FTA Directive No. 2 of 2026 and is not tax advice. We would be glad to review your VAT group position before a member joins or leaves.