Update on cost sharing groups
The CJEU has recently released its decision in the case of EC v Luxembourg on application of the rules on cost sharing groups (“CSGs”). In addition, there are a further three cases currently going through the CJEU in relation to CSGs.
By way of background, in 2012 the UK enacted legislation to introduce VAT exemption for services supplied by a cost sharing group to its members. The exemption applies when all the following conditions are met
- There must be an independent group of persons supplying services to its members
- The members must carry on activities which are exempt from VAT or one which is not a business activity for VAT purposes
- The supplies by the cost sharing group must be directly necessary for a member’s exempt or non-business activity
- The cost sharing group only recovers the members’ individual share of costs
- The application of the exemption is not likely to cause a distortion of competition
The aim of the rules is that VAT should not be a disincentive to collaborating or cost sharing with other third parties who also carry out exempt or non-business activities. This could be of interest to charities, housing associations, educational bodies and those involved in the banking, insurance and financial services sectors. The provisions have not been widely adopted, perhaps in part because of complexity and set up costs but also a lack of clarity about how the various conditions are to be interpreted. There is also a lack of consistency of application of the provisions across different EU member states.
The Luxembourg case dealt with several aspects which were specific to the rules in Luxembourg but it is useful to note the following themes that have emerged from the ruling
- VAT exemption for CSGs can apply even where the members have some taxable supplies, provided the services of the CSG are directly necessary for the VAT exempt or non-taxable activities of its members.
- Members of the CSG are not entitled to deduct VAT charged to the CSG. If the members purchase goods and services in their own name and for the account of the CSG, they are providing services to the CSG that fall within the scope of VAT
In the remaining three cases, the full outcome is awaited but the Opinions of the Advocate Generals have been issued. Two of these have been issued by AG Kokott and the third by AG Wathelet.
AG Kokott has expressed the view that CSG treatment is only available to organisations operating in certain sectors for the public interest. These include education, health and welfare but do not include banking, insurance or (possibly) housing. If this is followed by the Court, this would be of concern to Housing Associations who have set up, are members of or are thinking of joining CSGs.
AG Wathelet on the other hand has suggested a wider interpretation in that the exemption does not just apply to members with certain specified public interest activities but can also apply to banking, finance and other activities which are exempted under different provisions. (which would include housing).
The various opinions therefore currently seem to conflict and it will be a case of waiting for the full Court judgements. Meanwhile those in the social housing, banking and financial sectors will need to be aware of the possibility of significant change to the rules on CSGs.
If you would like to discuss this issue in further detail, please get in touch with your usual contact at Centurion or Julie Rawlinson-Smith on firstname.lastname@example.org or 07805 134091