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Luxembourg's VAT Group Rules Contrary To EU Law, Says ECJ AG

by Ulrika Lomas, Tax-News.com, Brussels

19 October 2016


Advocate General Kokott of the European Court of Justice has opined that the Court should return a ruling that Luxembourg has erred in EU law concerning the VAT system that it applies to independent groups of persons.

Under the VAT Directive, certain services supplied by a group to its members are exempt from VAT to avoid making operations downstream more expensive for these members, given that the VAT cannot be deducted. Strict conditions must be complied with in order to benefit from the exemption.

Under Luxembourg law, the services provided by an independent group to its members are free from VAT provided that the members' taxed activities do not exceed 30 percent (or 45 percent under certain conditions) of their annual turnover. Group members are also allowed to deduct the VAT charged to the group on its purchases of goods and services from third parties. Lastly, operations by a member in his or her own name but on behalf of the group are regarded as outside the scope of VAT.

Under EU law, in order to be exempt from VAT, the services provided by an independent group to its members must be directly required for their non-taxable or exempt activities. The Luxembourg rule providing for a ceiling for taxed operations does not fulfill this condition, the Commission had argued. Moreover, group members should not be allowed to deduct VAT charged to the group, it said.

Kokott of the ECJ agreed with the Commission's contention that such arrangements are likely to distort competition within the Single Market and are thus contrary to EU law.

The opinion was released on October 6, 2016, in Commission v. Luxembourg (C-274/15).

TAGS: compliance | tax | value added tax (VAT) | law | Luxembourg | services | VAT case law | VAT compliance matters | Europe

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