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This ruling (Commission v/ Luxembourg case (CJEU, 4 May 2017, C-274/15)) was awaited with great interest in view of the recently delivered Advocate General Kokott’s conclusions (DNB BANKA C-326/15 et AVIVA C-605/15) and Advocate General Wathelet‘s one (Commission versus RFA C-616/15 – Read our last article on the subject).
Without any surprise, the Court withholds a restrictive interpretation of the exemption’s rule. It rules that the group is a VAT taxable person which is distinct from its members. Hence, the services performed by the group for its members are in the VAT’s scope. They are then exempted if the conditions of the article 132, §1, f) of the VAT Directive are fulfilled (or if they benefit from another exemption).
Members can perform activities subject to VAT. Indeed, the Directive does not require members to only perform exempted or out of the VAT’s scope activities. Since the law does not precise any percentage regarding the proportion of these activities, the percentage of 20% fixed by the French Tax Authorities appear to be a restriction and not a favorable measure.
In order to be exempted, the services must be directly necessary to the exempt activity of the group’s member. If the services were necessary to a VAT taxable activity, they would not benefit from the exemption of article 132, §1, f). Concerning the services both benefiting to a VAT taxable and an exempt activity, the Court seems to suggest a partial taxation/exemption of the services performed by the group.
As a conclusion, members can have a large part of their activity subject to VAT as long as the services benefit to their exempted activity.
Finally, the Court addresses the question of the deduction by members of input VAT on the expenses of the group. It ruled that VAT on these expenses could only be deducted by the group.