CJEU rules on the VAT cost sharing exemption and exempt supplies
In Minister Finansów v Aviva Towarzystwo Ubezpieczeń na Życie S.A. w Warszawie (Case C-605/15), ‘DNB BANKA’ AS v Valsts ienemumu dienests (Case C-326/15) and European Commission v Federal Republic of Germany (Case C-616/15) (21 September 2017), the CJEU has found that the cost sharing exemption (Principal VAT Directive art 132) only applies to activities in the public interest.
The Aviva Group planned to set up shared-services centres in a number of member states to provide various management services to companies of the group. To do so, it intended to create a European Economic Interest Grouping (EEIG), whose members would be exclusively companies from the Aviva Group which provide insurance services. The issue was whether the activity of the EEIG could benefit from the cost sharing exemption (under the Principal VAT Directive art 132(1)(f)).
DNB Banka was a subsidiary of DNB NORD A/S, a Danish company, which also owned two other subsidiaries located in Lithuania and Poland, as well as a branch in Estonia. DNB Banka had concluded a contract with DNB NORD for the provision of services. Under that contract, DNB NORD provided management services to DNB Banka ‘on a continuous basis and to the extent necessary’. Similarly, DNB IT provided IT services to DNB Banka.
In both these cases, the CJEU first observed that art 132 is included in the Principal VAT Directive Title IX chapter 2, entitled ‘Exemptions for certain activities in the public interest’. This indicates that the exemption only applies to undertakings whose members carry on activities in the public interest. It added that art 135(1)(a) contains an exemption for ‘insurance and reinsurance transactions’ and for financial services, making it ‘clear’ that the exemption provided for in art 132(1)(f) does not apply to insurance transactions or to financial services. Therefore, the services provided by an independent group of persons (IGPs), whose members carry out insurance activities or financial services, do not come within that exemption.
In European Commission v Federal Republic of Germany, the Commission requested a declaration that, by restricting the VAT exemption to IGPs whose members exercise a profession in the health sector, Germany had failed to fulfil its obligations under art 132(1)(f).
In this case, also, the CJEU stressed that art 132(1)(f) only applies to IGPs whose members carry on activities in the public interest, thus dismissing the Commission’s complaint that the scope of the exemption of art 132(1)(f) is not limited to IGPs whose members carry on activities in the public interest. The CJEU, however, also dismissed Germany’s argument that the exemption is restricted to IGPs whose members exercise a professional activity in the health sector. The court observed that the directive envisages other exempt transactions in the public interest, such as transactions related to welfare and social security, education, sport and culture. The action of the Commission in relation to the restriction of the exemption to healthcare activities was therefore well founded.
Why it matters: In these three judgments, the CJEU has held that the cost sharing exemption only applies to exempt activities in the public interest, covered by the Principal VAT Directive art 132, and not to other activities which are exempt under art 135 (such as insurance and financial services). Germany may not be the only country which will need to amend its national legislation to comply with the Principal VAT Directive as interpreted by the CJEU.
CJEU rules on the VAT cost sharing exemption and exempt supplies
In Minister Finansów v Aviva Towarzystwo Ubezpieczeń na Życie S.A. w Warszawie (Case C-605/15), ‘DNB BANKA’ AS v Valsts ienemumu dienests (Case C-326/15) and European Commission v Federal Republic of Germany (Case C-616/15) (21 September 2017), the CJEU has found that the cost sharing exemption (Principal VAT Directive art 132) only applies to activities in the public interest.
The Aviva Group planned to set up shared-services centres in a number of member states to provide various management services to companies of the group. To do so, it intended to create a European Economic Interest Grouping (EEIG), whose members would be exclusively companies from the Aviva Group which provide insurance services. The issue was whether the activity of the EEIG could benefit from the cost sharing exemption (under the Principal VAT Directive art 132(1)(f)).
DNB Banka was a subsidiary of DNB NORD A/S, a Danish company, which also owned two other subsidiaries located in Lithuania and Poland, as well as a branch in Estonia. DNB Banka had concluded a contract with DNB NORD for the provision of services. Under that contract, DNB NORD provided management services to DNB Banka ‘on a continuous basis and to the extent necessary’. Similarly, DNB IT provided IT services to DNB Banka.
In both these cases, the CJEU first observed that art 132 is included in the Principal VAT Directive Title IX chapter 2, entitled ‘Exemptions for certain activities in the public interest’. This indicates that the exemption only applies to undertakings whose members carry on activities in the public interest. It added that art 135(1)(a) contains an exemption for ‘insurance and reinsurance transactions’ and for financial services, making it ‘clear’ that the exemption provided for in art 132(1)(f) does not apply to insurance transactions or to financial services. Therefore, the services provided by an independent group of persons (IGPs), whose members carry out insurance activities or financial services, do not come within that exemption.
In European Commission v Federal Republic of Germany, the Commission requested a declaration that, by restricting the VAT exemption to IGPs whose members exercise a profession in the health sector, Germany had failed to fulfil its obligations under art 132(1)(f).
In this case, also, the CJEU stressed that art 132(1)(f) only applies to IGPs whose members carry on activities in the public interest, thus dismissing the Commission’s complaint that the scope of the exemption of art 132(1)(f) is not limited to IGPs whose members carry on activities in the public interest. The CJEU, however, also dismissed Germany’s argument that the exemption is restricted to IGPs whose members exercise a professional activity in the health sector. The court observed that the directive envisages other exempt transactions in the public interest, such as transactions related to welfare and social security, education, sport and culture. The action of the Commission in relation to the restriction of the exemption to healthcare activities was therefore well founded.
Why it matters: In these three judgments, the CJEU has held that the cost sharing exemption only applies to exempt activities in the public interest, covered by the Principal VAT Directive art 132, and not to other activities which are exempt under art 135 (such as insurance and financial services). Germany may not be the only country which will need to amend its national legislation to comply with the Principal VAT Directive as interpreted by the CJEU.
