This decision was particularly expected, given the conclusions issued during these last months by the Advocate General Mrs. Kokott (DNB BANKA C-326/15 and Aviva C-605/15) as well as by the Advocate General Mr. Wathelet (European Commission v. RFA C-616/15).
This expectation was particularly high in France. Indeed, when implementing the 6th VAT Directive, this State had chosen not to implement VAT grouping and to adopt, in the light of its historical records of reimbursement of expenses, a broad interpretation of the exemption provisions of the VAT Directive, implemented by article 261 B of the French Tax Code.
Unsurprisingly, the Court retains a strict interpretation of the exemption provisions. This interpretation is somehow interesting because in certain respects, it shows that France adopted, under the cover of tolerance, a restrictive position.
As to the notion of group, the Court states that the group is a VAT liable person distinct from its members. The services rendered by the group to the members are therefore within the scope of VAT. The services are then exempted if the conditions of article 132 §1, f) of the VAT Directive are fulfilled (or if the services benefit from another exemption).
The services rendered by the members to the group, or the recharge of the expenses incurred by the members in their own name but on behalf of the group, are also included in the scope of VAT.
What is a downside for France is that the services are neither outside the scope of VAT nor exempted by article 132 §1, f).
The analysis according to which the group would be an entity within which the members would provide services to each other outside the scope of VAT is not accepted by the Court. This position had been recently defended by the Advocate General Wathelet in the opinion issued in the case European Commission v. RFA C-616/15.
As regards the conditions relating to group members, the Court specifies that they may have an activity subject to VAT. The text does not in fact require that the members exclusively have an activity exempt or outside the scope of VAT.
To the extent that the text does not contain a percentage of the proportion of these taxed activities, the percentage of 20% adopted by the French tax authorities is a restriction and not a tolerance. This percentage had already been, in our view, challenged by the Conseil d’Etat in a decision of 8 July 2002, “Caisse Fédérale du Crédit Mutuel d’Anjou”.
The Court does not specify, however, whether members may pursue an activity other than an activity of general interest referred to in Article 132 of the VAT Directive. It follows that we will have to wait for a decision as to whether insurance activities and banking activities can benefit from these exemption provisions.
As regards the conditions relating to services, the Court specified that, in order to be VAT exempt, the service must be directly necessary for the member’s exempt activity. Where the service is necessary for the activity that is taxed, the servicer may not benefit from the exemption from VAT provided for in Article 132 §1, f). Concerning services that benefit both to the taxed activity and to the exempt activity, the Court seems to envisage a partial taxation and exemption of the service rendered by the group. This would be reminiscent of one of the analyzes adopted by the European Commission (see, for example, WP 856, p.9 and WP 883, p.7) or the recent analysis carried out in Belgium (Circular N ° 31/2016 of 31/12/2016).
Interestingly, members can therefore have a widely taxed activity. The key is that the service benefits from the exempt activities. This recalls an analysis based on the allocation that had started to be recognized in France in terms of a separate sector of activity by the tax administration. However, the Court goes further, opening up new possibilities for exemption.
The Court also rules out the issue of the VAT deduction by the members on the expenditure incurred by the group. Not surprisingly, the Court considers that the VAT on these expenses can only be deducted by the group. There is no transparency that would allow members to recover VAT. It should be noted, however, that part of this VAT could be deducted by the group if the latter renders services subject to VAT (e.g services necessary for the taxed activity of the members), which would make it possible to find, by a circuitous route, a deduction phenomenon.
Article written with the assistance of Aude Lacroisade.