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Opinion of Advocate General Kokott in the case Commission v. Luxembourg released on 6 October 2016

Advocate General Kokott has just released her opinion in the case C-274/15, Commission against Luxembourg.

As a reminder, in Luxembourg, article 44, 1, y) of the Luxembourg VAT Law (hereafter “VATL”) provides for an exemption related to the services provided by independent group of persons (hereafter “IGP”). The Luxembourg legislation is specified by the Grand Ducal Decrees dated 21 January 2004 and 7 August 2012, which, together with article 44, 1, y) of the VATL, implement article 132, 1, f) of the Directive 2006/112/EC (hereafter “VAT Directive”).

Based on this legislation, the services provided by the IGP to its members can benefit from a VAT exemption if they meet specific conditions1.

However, in the case at stake, the European Commission is seeking the Court of Justice of the European Union (hereafter, “the CJEU”, “The Court”) to declare that the currently existing VAT regime in Luxembourg is contrary to the VAT Directive.

In her opinion released on 6 October 2016, Advocate General Kokott explained the following:

1. The exemption provided under article 132, 1, f) of the VAT Directive has to be interpreted strictly by Luxembourg (which is not currently the case).

Advocate General Kokott follows the findings presented by the European Commission. In particular, article 132, 1, f) provides for the exemption only in specific situations, i.e. where the IGP is supplying services directly necessary to the exercise of the VAT-exempt activity of its members, or for which the members of the IGP should not be considered as taxable persons for VAT purposes.

Insofar as in Luxembourg this exemption seems to extend to the cases where the support services supplied would be directly linked to the taxable activities of the members of an IGP (article 2, under a) of the 2004 Grand Ducal Decree), this should be interpreted by the Court as a clear violation of the VAT Directive.

For the Advocate General, the services supplied to the members should be directly linkable to their VAT-exempt activity or out of scope. In cases where a member of an IGP also carries out a taxable activity for VAT purposes, the application of the VAT exemption on the services provided by the IGP would not be possible, unless these services would obviously be only related to the exempt activity or out of scope, which was not a requirement in Luxembourg for the period under scrutiny.

Indeed, the fact that the 2004 Grand Ducal Decree was later refined by the Grand Ducal Decree in 2012 is irrelevant for the situation at stake, insofar as the European Commission had asked Luxembourg to change its legislation before the adoption of the latter.

2. Advocate General Kokott is of the opinion that the IGP should be considered as a taxable person for VAT purposes, insofar as it is rendering VAT-exempt services to its members. For that matter, the IGP should be distinguished from its members.

This should have the two following implications:

- The VAT borne by the IGP included in the price of the VAT-exempt supplies rendered by the IGP cannot be recovered by its members, even though the supplies would ultimately benefit the latter.

For example, if a third party invoices an IGP for services rendered to the latter with an amount of (100+17% of VAT) EUR 117, the IGP would re-invoice its two members with an amount of EUR 58.50 (VAT-exempt but including the portion of non-deductible VAT invoiced by the IGP) each. Based on the above mentioned comment, the entities would not be able to deduct the input VAT (amounting respectively to EUR 8.50 for each member) on these services according to their applicable pro rata.

- Further, the members of the IGP have to apply VAT on the services supplied / goods sold or affected to the IGP. In particular, this means that an allocation of staff should be taxable and the related VAT should therefore result in a final cost for the members.

If the CJEU were to follow the opinion of Advocate General Kokott, this would have far reaching consequences for the use of the exemption provided under article 44, 1, y) of the VATL.

Indeed, the creation of IGPs would be restricted to only very specific situations, and only a small fraction of economic operators (e.g. in the medical sector) would be able to use it, as long as they exercise a complete exempt activity for VAT purposes. The situation of the IGPs currently in place would be therefore jeopardised.

The time has come to review existing IGP structures and anticipate the consequences resulting from a judgment of the Court in line with the opinion of its Advocate General!


1 These conditions are the following: the members have to carry out an activity which is VAT-exempt or in relation to which they are not considered as taxable persons (i.e. out of scope of VAT); The VATL limits the scope of the exemption to the services supplied by the IGP which are directly necessary for the exercise of its members’ activities. Therefore, the supply of ancillary goods should not benefit from any VAT exemption, unless these goods are necessary to the services supplied. Finally, the IGP should also comply with several requirements dealing with its status and the reimbursement of its costs.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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