On September 21 2017, the Court of Justice of the European
Union (CJEU) held that the banking, financial and insurance
sectors cannot benefit from the VAT exemption granted to
services provided by an independent group of persons (IGP).
Article 132.1.f) of the EU VAT Directive provides a VAT
exemption for services rendered by an IGP to its members when
the members are engaged in VAT-exempt activities (e.g. banking,
insurance and financial activities) and/or non-business
activities (e.g. not-for-profit or public interest activities).
One of the requirements to qualify for the IGP exemption is
that the services provided by the IGP must be directly
necessary for the members’ activities. In
practice, this includes services such as administrative,
accounting and IT services. The IGP thus allows the
centralising of these types of services between members to
benefit from an economy of scale without being applicable to
The IGP exemption has been widely used by the banking,
financial and insurance sectors by setting up multiple IGPs in
various EU member states, including Luxembourg. The CJEU held
that the IGP exemption can apply only to services from IGPs
whose members undertake an activity in the public interest, as
defined in the VAT Directive. Services supplied by an IGP whose
members undertake an economic activity in the financial or
insurance sector are not entitled to the exemption. The CJEU
decision to exclude these sectors from the benefit of the
exemption came as a surprise.
Hopefully, the scope of the VAT grouping article in the VAT
Directive (Article 11) is sufficiently broad to allow member
states to consider as a single taxpayer legally independent
persons linked by economic, financial and operational links.
Several member states have adopted a VAT grouping regime (e.g.
Austria, Belgium, Germany, Ireland, the Netherlands, Spain, the
UK, etc.), but France and Luxembourg have not. It is worth
noting that even in member states that allow a VAT grouping,
the IGP is used by the financial sector, and some taxpayers, in
practice, use both regimes.
The VAT unity has broader application than the IGP exemption
because any person, regardless of its activities, can be part
of a VAT group and all supplies of goods and services between
the group members fall outside the scope of VAT, not only
"directly necessary" services. However, the territorial scope
of application of a VAT group is limited because only persons
established in a same member state can be members of a VAT
group. By comparison, before the CJEU decision, it was possible
to have cross-border IGPs.
Considering the significant restriction on the scope of
application of the IGP regime, EU member states that have not
yet implemented a VAT grouping regime should consider
introducing a regime with flexible rules for taxpayers and the
tax administration alike. They should also allow a reasonable
transition period to allow economic operators to adapt to the
consequences of the CJEU decisions.
In the longer-term, the EU may wish to consider amending the
VAT Directive and including a revised IGP regime that would
apply on a cross-border basis and be available for the banking,
financial and insurance sectors.
This article was written by Raphaël Glohr, partner,
and Michel Lambion, director, of Deloitte Tax & Consulting