• Professional News
  • 30 November 2017

New cost sharing practice rules out ”financial groups”

On 21 September 2017, the Court of Justice of the European Union (CJEU) issued rulings that unambiguously conclude that VAT exemption for ”independent groups” only applies to activities in the public interest. Consequently, financial enterprises ed to analyse whether they are members of VAT-exempt groups, as these groups most likely will soon become liable to pay VAT, resulting in higher costs.

The EU Directive on the common system of VAT and the Danish VAT Act (momsloven) have provisions stating that services provided by an “independent group” for the members of the group may be exempt from VAT if the following conditions are met:

  • Group members carry out VATexempt
    activities.
  • The services provided by the
    group are necessary for the members’
    activities.
  • Members’ payment for group services
    corresponds to the group’s
    costs.
  • Tax exemption within the group
    does not distort competition.

The provision on exemption is highly applied in the financial sector, where enterprises form independent groups that share the costs of receiving VAT-exempt services for group members.

New practice
The new EU practice means that VAT exemption can no longer be applied by financial enterprises, as their activities cannot be considered to be of general interest.

The rulings are a change of EU practice as determined in C-8/01, Taksatorringen, in which the CJEU approved application of the provisions on cost sharing within the financial sector.

Bech-Bruun’s comments

The provision on cost sharing in the Danish VAT Act cannot be considered correct implementation of the EU Directive on VAT. As such, a change of practice will in our opinion require an amendment of the VAT Act.

As the implementation is erroneous, the authorities cannot change their practice in the area merely by changing the interpretation of the VAT Act. With its recent rulings the CJEU supports this point  of view. According to the CJEU, the change of practice will apply only to future matters.

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