In the first of a series of European Court cases on the topic of cost sharing exemption, the European Court of Justice rules that the Luxembourg application of the cost sharing exemption rules are unlawful.  Luxembourg cost sharing groups can no longer take advantage of their 30% deminimis rule VAT costs will increase for Lux cost sharing groups.


On 4 May 2017, the Court of Justice of the European Union (“CJEU”) released its judgment in the case Commission v. Luxembourg (C-274/15) regarding the Luxembourg VAT rules applicable to independent groups of persons (also known as “IGPs” or “cost-sharing” groups) to their members.


Please click here for a link to the decision


Pursuant to article 132, § 1, f) of the EU VAT Directive, the supply of services by independent groups of persons to their members which are either VAT exempt taxable persons, or non-taxable persons, are exempt of VAT. For the VAT exemption to apply, these services must be directly necessary to sustain each member’s VAT exempt or non-business activities. In addition, payments made by the members to the IGP must be the exact reimbursement of the joint expenses and no distortion of competition shall result from the VAT exemption.
The aim of the IGP regime is to avoid a VAT cost on support services pooled at the level of the IGP (staff, payroll services, etc.). Without this specific VAT exemption, the services rendered by the IGP would be subject to VAT which would constitute a final cost for the members carrying on activities with no VAT deduction right.

Following the opinion of the advocate general Kokott, the CJEU ruled that the implementation of the IGP regime in accordance with the VAT legislation in Luxembourg does not comply with the EU VAT Directive.


The Luxembourg VAT Law provides that services rendered by an IGP to members carrying on taxable activities that do not exceed 30% (or 45% under certain conditions) of their annual turnover are exempt from VAT. In this regard, the Court ruled that the exemption can only apply if services rendered by the IGP are directly necessary for the VAT exempt or the non-taxable activities of the members. Services rendered by the IGP in relation to the VAT taxable activity of the members should therefore not be covered by the VAT exemption.
Under the Luxembourg VAT Law and based on their VAT recovery ratio, the members of an IGP may deduct the VAT borne by the IGP on purchases from third parties. By recalling that the IGP is an independent taxable person which is distinct from its members, the Court ruled that only the IGP is entitled to claim a right of deduction of that VAT and not its members.

Lastly, the allocation of costs (notably staff) by the members to the IGP has to be considered as falling within the scope of VAT. In Luxembourg, these allocations are considered as outside the scope of VAT.


In the light of this CJEU’s judgement, it is clear that the current Luxembourg regime will have to be revised and that the impacts in the financial sector are likely to be material.

It is also important to note that the CJEU has been called upon to render its judgments in three other cases related to the IGP regime in the coming months. In the case Commission v. Germany (C-616/15), the Court will have to determine whether this VAT exemption should be limited to members carrying on activities in the public interest (and not to the financial sector). Cross-borders IGP and interactions with transfer pricing rules will be addressed by the CJUE in the DNB Banka (C-326/15) and Aviva (C-605/15) cases. The outcome of these cases will define the scope of the VAT exemption and may potentially lead to amendments in local VAT legislation and increased VAT for cost sharing groups.

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Indirect Tax | Luxembourg

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