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UK: Possible future of VAT cost-sharing exemption

UK: Possible future of VAT cost-sharing exemption

Karen Killington and Philippe Gamito take a look at the possible future of the VAT cost-sharing exemption.


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The Advocate General’s (AG) opinion in DNB Banka and Aviva would, if upheld by the Court of Justice of the European Union, result in a dramatic narrowing of the scope of the VAT exemption for cost-sharing groups. The AG opined, inter alia, that the VAT cost-sharing group exemption has direct effect. The exemption is territorial in nature and is not intended to be applied on a cross-border basis and any amounts charged by a cost sharing group over and above the exact reimbursements of costs will prevent the VAT exemption from applying, even where an uplift is required for direct tax purposes. The AG’s opinion not only has serious implications for existing cost-sharing groups, it also raises much broader and vital questions as to the proper extent of the principle of territoriality, and the relationship between EU VAT law and the domestic legal system of the member states, as well as between the VAT Directive and other tax regimes.

In a recent article for Tax Journal*, Karen Killington and Philippe Gamito of KPMG in the UK’s indirect taxes team take a look at the fuller implications of the AG’s opinion, and what it could mean for the future of cost sharing groups.

* First published in Tax Journal on 31 March 2017. Reproduced with permission.

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