Four cases are currently pending before the Court of Justice of the European Union (“CJEU”). They concern the application of the VAT exemption to the services rendered by independent groups of persons (“IGPs”) to their members further to the article 132, 1, f) of the VAT Directive.

In the Commission against Luxembourg case (C-274/15) , Advocate General Kokott argued that the so far existing national rules had not satisfactorily implemented article 132, 1, f) of the VAT Directive. Luxembourg should therefore be condemned for failure to fulfil its obligations under EU Law.

In the Aviva and DNB Banka cases (C-605/15 and C-326/15), Advocate General Kokott expanded on this exemption, concluding that IGPs should not have any cross-border implications and that the scope of the exemption provided under the VAT Directive should exclude IGPs active (among others) in insurance and financial activities.
If these three opinions seem to bring a dark shadow for several Member States on the current existing rules governing IGPs, the latest opinion given by Advocate General Wathelet on the matter put forward several contradictory arguments in favor of more flexibility regarding the application of this exemption.

According to the German government and based on the non-distortion objective included in the provision of the VAT Directive, the German VAT Law foresees a limitation of the application of the VAT exemption on the services rendered by IGPs to a limited number of enumerated professions (active in the health sector, i.e. doctors and paramedicals, or assimilated).

The following remarks of the Advocate General’s analysis should be particularly emphasized:

• Advocate General Wathelet first refers to the notion of “group” to be understood under the VAT Directive (schematic argument). According to him, the group within the meaning of article 132, 1, f) of the VAT Directive should be understood as transparent for VAT purposes: it constitutes neither a purchaser, nor a seller or an agent. It should therefore be considered as a taxable person when operating towards its members. As a consequence, considered from a Luxembourg perspective, this assertion would imply that allocation of resources to the group by the members would fall outside the scope of VAT. Further, it should as such not prevent the possibility for the members of the group to recover VAT on the services/goods acquired by the group. In this respect, the Advocate General brings forward the fact that the group does not provide any supply for consideration towards its members and that the incurring of expenditure by the group should be considered as internal to the group.

• Additionally, the application of an exemption should be considered together with the objective to be attained (teleological argument): in this respect, this exemption aims to avoid the payment of an irrecoverable VAT for the members of the group.

• Finally, the Advocate General is of the opinion that the wording entailed in the article 132, 1,f) is not appropriate, insofar as it foresees the application of the exemption to the activities linked with public interest (textual argument). However, the only actual restrictions existing concern the activity of the members (benefiting from an exemption or for which they are not considered as taxable persons for VAT purposes) and the fact that only services rendered by the IGP to the members are exempt. As a consequence, the scope of article 132, 1, f) should not be limited to activities in the public sector or a fortiori to the health sector.
  

Further, Advocate General Wathelet maintains that the criterion of distortion of competition should be examined on a case by case basis, referring to the context of each and every situation at stake. More specifically, the benefit of the exemption should be refused on the basis that there is a “genuine risk that the exemption may by itself, immediately or in the future, give rise to distortions of competition”.

As the long awaited decision of the CJEU in the Commission against Luxembourg case is now foreseen to be published on 4 May, we will have to wait a few more weeks to find out whether the European judges decide to apply the rules in a restrictive manner (and follow the opinions rendered by Advocate General Kokott) or whether they will settle in favor of a more flexible application of the VAT exemption related to IGPs. It is however worth noting that opinions of Advocate General Wathelet seem in better accordance with the economic rationale and actual functioning of IGPs.