Karen Killington and Philippe Gamito take a look at the possible future of the VAT cost-sharing exemption.
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.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in 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. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.