On May 4, 2017, the ECJ issued its decision in the case C-274/15 (Commission v Luxembourg).
Context: Failure of a Member State to fulfil obligations — Taxation — Value added tax — Directive 2006/112/EC — Article 132(1)(f) — Exemption from VAT of supplies of services by independent groups of persons to their members — Article 168(a) and Article 178(a) — Right of deduction for the members of the group — Article 14(2)(c) and Article 28 — Actions of a member in his own name and on behalf of the group
Note: IGP = Independent Group of persons
Article in the EU VAT Directive
Articles 14(2)(c), 28, 132(1)(f),168(a), 178(a) of the EU VAT DIrective 2006/112/EC.
Article 14(2)(c) (Taxable transactions – Supply of Goods)
2. In addition to the transaction referred to in paragraph 1, each of the following shall be regarded as a supply of goods:
(c) the transfer of goods pursuant to a contract under which commission is payable onpurchase or sale.
Article 28 (Taxable transactions – Supply of Services)
Where a taxable person acting in his own name but on behalf of another person takes part in a supply of services, he shall be deemed to have received and supplied those services himself.
Article 132(1)(f) (Exemption – Exemptions for Certain Activities in the Public Interest)
1. Member States shall exempt the following transactions:
(f) the supply of services by independent groups of persons, who are carrying on an activity which is exempt from VAT or in relation to which they are not taxable persons, for the purpose of rendering their members the services directly necessary for the exercise of that activity, where those groups merely claim from their members exact reimbursement of their share of the joint expenses, provided that such exemption is not likely to cause distortion of competition;
Article 168(a) (Right to deduct VAT – Origin and Scope of Right of Deduction)
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries
out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
Article 178(a) (Right to deduct VAT – Rules Governing Exercise of the Right of Deduction)
In order to exercise the right of deduction, a taxable person must meet the following conditions:
(a) for the purposes of deductions pursuant to Article 168(a), in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Sections 3 to 6 of Chapter 3 of Title XI;
Facts
- By letter of formal notice of 7 April 2011, the Commission drew the attention of the Grand Duchy of Luxembourg to the fact that the VAT regime applicable to independent groups of persons (‘IGPs’ or ‘IGP’, as appropriate), as defined, in particular, in Article 44(1)(y) of the Law on VAT and in Articles 1 to 4 of the Grand-Ducal Regulation, did not appear to it to be compatible with several provisions of Directive 2006/112.
- In its first ground for complaint, the Commission stated that the national provisions under which services supplied by IGPs for the benefit of their members are exempted from VAT, including where those services are used for the purposes of the taxed transactions of those members where the annual turnover excluding tax in relation to those taxed transactions does not exceed 30%, or even 45% in certain cases, of their total annual turnover excluding tax, appeared to it to be incompatible with Article 2(1)(c) and Article 132(1)(f) of Directive 2006/112.
- In its second ground for complaint, the Commission stated that the national legislation was incompatible with the second subparagraph of Article 1(2), Article 168(a) and Article 178(a) of Directive 2006/112, in so far as it provides that the members of an IGP who carry out taxable activities up to a maximum of 30% of their total annual turnover excluding tax may deduct the VAT invoiced to the IGP in respect of the goods and services supplied to it from the VAT for which they themselves are liable.
- The third and last ground for complaint raised by the Commission was directed at the fact that, where a member of an IGP acquires goods and services from third parties in his own name, but on behalf of the IGP, the national legislation excluded from the scope of VAT the transaction consisting, for that member, in allocating to the IGP the expenses thus incurred, contrary to the provisions of Article 14(2)(c) and Article 28 of Directive 2006/112.
Questions
Article 132(1)(f) of the VAT Directive stipulates that Member States are to exempt from VAT ‘the supply of services by independent groups of persons, who are carrying on an activity which is exempt from VAT or in relation to which they are not taxable persons, for the purpose of rendering their members the services directly necessary for the exercise of that activity, where those groups merely claim from their members exact reimbursement of their share of the joint expenses, provided that such exemption is not likely to cause distortion of competition’.
However, according to the Commission, the legislation applicable in Luxembourg does not restrict the VAT exemption only to services provided by an independent group of persons and directly necessary for activities undertaken by its members which are not liable to VAT or are exempt.
Further, the Commission submits that under Luxembourg law, the members of an independent group of persons whose turnover partly derives from taxable activities may deduct the VAT invoiced to the independent group of persons for its purchases of goods or services from a third party from the VAT which they themselves are liable to pay; whereas under Article 168 of the VAT Directive, the right to deduct input VAT is granted only to a taxable person who acquires the goods or services subject to VAT and uses them for the direct purposes of his taxed transactions.
Lastly, the Commission maintains that Article 14(2)(c) and Article 28 of the VAT Directive preclude the national legislation in so far as it provides that, where a member of an independent group of persons acquires goods and services from a third party in his own name, but on behalf of the group, the transaction by which that member assigns such expenditure to the group falls outside the scope of VAT.
AG Opinion
I accordingly propose that, in the action brought by the Commission against the Grand Duchy of Luxembourg, the Court should:
(1) declare that, by enacting and maintaining legislation that also exempts from VAT services supplied by independent groups of persons to their members that were not directly necessary for the exercise of an activity of the members that is exempt from VAT or in relation to which they were not taxable persons, the Grand Duchy of Luxembourg has failed to fulfil its obligations under Article 2(1)(c) and Article 132(1)(f) of Directive 2006/112/EC;
(2) declare that, by enacting and maintaining legislation that permits a member within the meaning of Article 132(1)(f) of that directive to claim a right of deduction in respect of services that were not supplied to the member itself but instead to the group, the Grand Duchy of Luxembourg has failed to fulfil its obligations under Article 168(a) of Directive 2006/112/EC;
(3) declare that, by adopting an administrative practice that regards costs charged to a group where a member purchases goods and services within the meaning of Article 132(1)(f) of that directive in its own name but on behalf of the group as irrelevant for the purposes of VAT, the Grand Duchy of Luxembourg has failed to fulfil its obligations under Article 14(2)(c) and Article 28 of Directive 2006/112/EC;
(4) dismiss the action as to the remainder;
(5) order the Grand Duchy of Luxembourg to pay the costs.
Decision
1. Declares that by providing for the value added tax (VAT) regime applicable to independent groups of persons, as defined, first, in Article 44(1)(y) of the consolidated text of the loi du 12 février 1979 concernant la taxe sur la valeur ajoutée (Law of 12 February 1979 on value added tax), read in conjunction with Article 2(a) and Article 3 of the règlement grand-ducal du 21 janvier 2004 relatif à l’exonération de la TVA des prestations de services fournies à leurs membres par des groupements autonomes de personnes (Grand-Ducal Regulation of 21 January 2004 on the exemption from VAT of supplies of services by independent groups of persons to their members), second, in Article 4 of that regulation, read in conjunction with circulaire administrative n°707, du 29 janvier 2004 (administrative circular No 707 of 29 January 2004), in so far as it comments on Article 4 of that regulation, and, third, in the note of 18 December 2008 drafted by the working group within the comité d’observation des marchés (Market Observation Committee, COBMA) with agreement from the administration de l’Enregistrement et des Domaines (Registration and Land Authority), the Grand Duchy of Luxembourg has failed to fulfil its obligations under Article 2(1)(c), Article 132(1)(f), Article 168(a), Article 178(a), Article 14(2)(c) and Article 28 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2010/45/EU of 13 July 2010;
2. Dismisses the action as to the remainder;
3. Orders the Grand Duchy of Luxembourg to pay the costs.
Summary
By adopting the VAT regime in respect of independent groups of persons, Luxembourg has failed to fulfill its obligations under Article 2(1)(c), Article 132(1)(f) Article 168(a), Article 178(a), Article 14(2)(c) and Article 28 of the VAT Directive, as amended by Council Directive 2010/45/EU of 13 July 2010.
Source:
Similar ECJ cases
Reaction from Luxembourg on the ECJ Case
The introduction of a new section 9 regarding VAT groups arises from decisions of the Court of Justice of the European Union (CJEU), in particular,the case law of 21 September 2017 in the matters of Minister Finansów v. Aviva Towarzystwo Ubezpieczeń na Życie S. A . w Warszawie (C-605/ 15), DNB Banka AS v. Valsts ieņēmumu dienests (C-326/15) and European Commission v. Federal Republic of Germany (C-616/15) and the case law of 04 May 2017 in the matter of European Commission v. Grand Duchy of Luxembourg (C-274/15).
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