The CJEU has given its judgment in the infringement case brought by the European Commission against Luxembourg (Case C-274/15) over the latter’s implementation of the EU law “cost-sharing group” (CSG) exemption . The court found that Luxembourg’s legislation on independent groups of persons (IGPs) did not comply with the EU VAT Directive, resulting in services being incorrectly treated as exempt.

In the CJEU’s opinion, only services rendered by an IGP that are directly necessary for the exercise of the exempt activities of its members may fall outside the scope of VAT. In the light of the IGP’s independence from its members, the latter may not reduce the amount of VAT which they are liable to pay in respect of goods or services provided to the IGP.

This decision was in line with the opinion of Advocate General Julianne Kokott delivered in October last year. Specifically, the AG had opined that:

• Luxembourg’s legislation did not restrict the CSG exemption to services which were ‘directly necessary’ for activities undertaken by its members
• If the CSG bought in services and charged these on to individual members, the member could not deduct the VAT that should become irrecoverable at the level of the CSG, just because the individual member was able to recover its VAT costs
• If the CSG member itself purchased services on behalf of the CSG, the AG considered that it did so as an agent and therefore the VAT treatment of the onward charge should be the same as the services received by the member i.e. the cost sharing exemption should not apply