Tax alert: May 2017 - Cost sharing groups – ECJ case law C-274/15

The CJEU has followed the opinion of its Advocate General Juliane Kokott by retaining a strict interpretation of the provisions of Article 132(1)(f) of VAT Directive (2006/112/EC), transposed in France by Article 261 B of the General Tax Code.

However, on some specific issues, the Court’s analysis is not as restrictive as it seems.

On the notion of grouping

The Court confirms the notion of grouping set out by the Advocate General for the purposes of the VAT exemption in Article 132(1)(f): the IGP is an entity distinct and separate from its members, autonomous, acting as a taxable person in its own right.

For this reason, the supplies that the IGP provides to its members (who are also taxable persons) are within the scope of VAT but are exempted.
The analysis that the transactions carried out by the IGP should have been considered outside the scope of VAT does not seem to have been adopted by the Court (an interesting view defended by the Advocate General, Melchior Wathelet, in his Opinion in the case of Commission v Federal Republic of Germany, C-616/15).

As a taxable person, and provided the IGP supplies services which are taxable for VAT purposes, the IGP is entitled in its own right to deduct VAT charged on its input transactions.

This VAT deduction right is separate and distinct from that of its members.

The main conditions laid down by the VAT Directive to obtain the benefit of the VAT exemption were also analysed by the Court. 

Condition linked to the status of the members of the IGP

The Court does not challenge the fact that an entity carrying out a VAT exempt activity as well as a taxable activity for VAT purposes can be a member of and therefore part of an IGP.

Therefore, this means a partially-exempt/VAT liable company can be member of the IGP and still benefit from the VAT exemption on a supply of services rendered to it by the IGP as long as the condition relating to the use of that service is fulfilled. 

Condition linked to the use of services from the IGP

Indeed, the services rendered by an IGP whose members carry out taxable and exempt activities may qualify for the VAT exemption, but only in so far as those services are directly necessary for those members’ exempt activities or non-business activities.

The IGP can therefore invoice its services excluding VAT and/or exempt from VAT, according to the share of its members’ activities in their totality represented by their VAT-exempt activities or those which are non-business. On the other hand, the exemption will not benefit or apply to services which are allocated to the member’s taxable activity.

As the Court did not at any time rule on a threshold of taxable activity above which a company or entity would not be able to be a member of the IGP, it seems that such a threshold is not a required criterion.

In light of this EU case law, our threshold in France of 20% of taxable activity at the level of the member is more like a restriction than a “tolerance” of the French tax administration.

We will need to wait for the next ECJ decisions (DNB BANKA C-326/15 and AVIVA C-605/15) to have a clear view on the scope rationae materiae and rationae loci of the IGP.