On September 21, 2017, the ECJ issued its decision in the case C-616/15 (Commission v Germany).
Context: Failure of a Member State to fulfil obligations — Taxation — Value added tax — Directive 2006/112/EC — Article 132(1)(f) — Exemption for services supplied to their members by independent groups of persons — Restriction to independent groups whose members exercise a limited number of professions
Article in the EU VAT Directive
Article 132(1)(f) of the EU VAT Directive 2006/112/EC.
Article 132 (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;
Facts & Questions
Germany restricts to certain well-defined professions the exemption from VAT for the supply of services by independent groups of persons carrying on an activity which is exempt from VAT, or in relation to which they are not taxable persons, for the direct purposes of the exercise of that activity. The exemption under the German law on VAT covers solely groups whose members are either doctors or health professionals and hospitals or establishments similar to hospitals.
This is incompatible with Article 132(1)(f) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax. Neither the wording, purpose, nor preparatory work leading to the adoption of Article 132(1)(f) of Directive 2006/112/EC justifies such a restriction of the exemption from VAT to groups from certain professions. The exemption should, however, apply to groups from all professions provided that they exercise tax-exempt professions.
The restriction under the German law on VAT is also not justified by a potential general distortion of competition. This is because, as far as tax exemptions are concerned, the presence or absence of a distortion of competition can only apply with regard to the specific facts of a given case. Distortions of competition cannot be assessed in the abstract for certain professions of a group and services provided in connection with those professions.
AG Opinion
For these reasons, I propose that the Court should:
– declare that, by restricting to groups whose members exercise a limited number of professions the exemption for the supply of services by independent groups of persons carrying on an activity which is exempt from VAT, or in relation to which they are not taxable persons, to their members for the direct purposes of the exercise of that activity where those groups merely claim from their members exact reimbursement of their share of the joint expenses, the Federal Republic of Germany has failed to fulfil its obligations under Article 132(1)(f) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, and
– order the Federal Republic of Germany to pay the costs.
Decision
1. Declares that by restricting the value added tax exemption to independent groups of persons whose members exercise a limited number of professions, the Federal Republic of Germany has failed to fulfil its obligations under Article 132(1)(f) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax;
2. Orders the Federal Republic of Germany to pay the costs.
Summary
The European Commission informed Germany that it had doubts about the compatibility with the VAT Directive of the German legal provisions on the umbrella exemption. According to the Commission, German law limited the umbrella exemption to services provided by IGPs whose members practice health care activities or professions, while under the VAT Directive the exemption did not apply only to groups of certain professional groups, but to all groups of persons , where the persons concerned were exempt from VAT or were not subject to tax for the activity they carried on. The Commission therefore took the view that German sales tax law was not in line with the objectives of EU law,
The ECJ has confirmed this view. Germany has failed to fulfill its obligations under Article 132(1)(f) of the VAT Directive by limiting the umbrella exemption to independent groups of persons whose members only practice certain specific professions.
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