On March 1, 2017, Advocate General Kokott (AG) with the Court of Justice of the European Union (CJEU) issued her Opinions in two Cases on the VAT exemption for the supply of services by cost sharing associations (the so-called “independent groups of persons”).
Article 132(1)(f) of the VAT directive provides that Member States must exempt from VAT the supply of services by independent groups of persons carrying on an activity that is exempt from VAT (or in relation to which they are not taxable) for the purpose of rendering services to their members that are directly necessary for the exercise of that activity. It also states that the groups may only claim exact reimbursement of their share of joint expenses and that the exemption must be unlikely to distort competition.
In the Aviva case (C-605/15), the AG’s opinion is that the exemption should be interpreted strictly. Although the exemption does not explicitly exclude cross-border groups, the AG is for instance of the opinion that an independent group of persons may supply exempt services only to members that are subject to the same legal system. Allowing members in different jurisdictions to benefit from the exemption would, still according to the AG, conflict with the legislative scheme and lead to potentially inconsistent treatment in different countries with the related difficulties for the VAT authorities to control the respect of the conditions.
In the DNB Banka case (C-326/15), the AG recommends that an independent group of persons does not have to be a legal person, but should be a taxable person. A mere group consisting of related undertakings whose companies provide each other with services does not as such qualify as a taxable person. The exemption should therefore not apply to the supply of services by related companies within such group.
In addition, the AG takes a surprisingly vigorous position that the exemption only covers groups of taxable persons which carry out exempt transactions in accordance with Article 132(1) of the VAT Directive. According to her more detailed explanation in the opinion on the Aviva case, this exemption should therefore not apply to the banking and insurance sectors (carrying out transactions in accordance with article 135 of the VAT directive), and it should be left to the European legislature to decide upon an extension of the exemption in this respect.
Finally, the exemption may not apply where the consideration for the services at stake goes beyond the mere reimbursement of the expenses incurred. That is also the case, according to the AG, where a simple flat-rate cost uplift is paid as required under the legislation on direct taxation.
If the CJEU follows the Opinions of the AG, the impact for independent groups of related companies, groups in the financial services sector and/or cross-border groups will be profound. However, if the CJEU would have a different view on (some of) these subjects, which is not unusual under the current CJEU jurisprudence, this might have a positive impact given the current uncertainty about some of the questions raised from a Belgian point of view.