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Netherlands To Champion EU VAT Law Change For Cost-Sharing Groups

by Ulrika Lomas,, Brussels

14 June 2018

The Dutch Ministry of Finance has reassured taxpayers that it seeking to resolve at EU level reform of the EU's value-added tax rules concerning cost-sharing groups, following the European Court of Justice's rulings in DNB Banka (Case C-326/15) and Aviva Towarzystwo (Case C 605/15).

Article 132(1)(f) of the EU VAT Directive provides an additional exemption for certain activities that are in the public interest. The exemption allows persons who carry on these activities to join together to form a cost-sharing group (CSG) so that they can acquire services and recharge their members for their use of the services at cost without incurring any additional sticking VAT.

A CSG is a separate, independent entity, set up to enable its members to supply themselves with certain qualifying services at cost and exempt from VAT. As a result, a "co-operative self-supply" arrangement is created – a term coined by the EU Commission. Because the CSG is a separate taxable person from its members, it's able to make supplies for VAT purposes to its members. This exemption allows small providers who can't afford to acquire assets on their own account to benefit from the same overall VAT position as larger providers who can afford to purchase the assets themselves. Therefore, the more members of a CSG there are, the greater the potential savings and lower the costs per member of operating the relevant CSG.

The rulings from the ECJ precluded insurance or financial services from benefiting from the exemption, ruling that these services cannot be said to be in the public interest.

As explained by the UK tax agency, HM Revenue and Customs, in its own response to the rulings, the exemption can now only benefit the following services as being in the public interest: postal services; education; health and welfare; subscriptions to trade unions, professional, and other qualifying bodies; sport, sports competitions, and physical education; fund raising by charities; and cultural services.

It said, as a result of the ECJ's rulings, the cost-sharing exemption may no longer apply to banks, insurance businesses, financial services businesses, and suppliers of land and property, which previously could qualify. This potentially will result in significant costs for those previously benefiting from the exemption.

The Dutch Government said: "A previously announced curtailment of the so-called umbrella exemption, by which companies and local authorities can, in a joint venture, exempt services from their members from VAT, is suspended." The former government had announced that from January 1, 2019, the Netherlands would no longer allow the VAT exemption for the precluded services but the new Government has now said that that change will be put on hold. It added: "The curtailment was announced by the previous government on January 1, 2019, as a direct result of judgments of the European Court. Because this can have financial consequences for users of the umbrella exemption, the Government is going to work together with other European member states to prepare for repair via European regulations."

Speaking to the lower house, Menno Snel, the Secretary of State for Finance, said: "It is important that nothing gets in the way of this cooperation. The financial consequences can be large, as has recently become clearer. This can only be solved in a European context and I am going to work hard for this in the coming period. I note that this is also supported by other member states."

"Because of the judgments of the European Court, this exemption would only apply to specifically stated services of general interest, such as medical care, hospital care, social work and social security, services by retirement homes, and education."

"This would greatly limit the exemption as applied in the Netherlands. For example, the provision of good and safe water management would no longer be regarded as a performance of [an activity in the] general interest, as a result of which activities such as these could become more expensive for water boards. That is why the government is committed to repair this curtailment in a European context."

TAGS: Finance | VAT special schemes | tax | business | value added tax (VAT) | Netherlands | interest | VAT legislation | law | financial services | insurance | education | legislation | social security | charities | regulation | trade | services | VAT case law | Europe

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