• Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 2/21/2014

Luxembourg - VAT on services from independent group to members 

February 21:  The European Commission this week announced it is referring Luxembourg to the Court of Justice of the European Union (CJEU) for the value added tax (VAT) treatment of independent groups of persons under Luxembourg VAT law.

As explained in the EC release, certain services supplied by a group to its members may be exempt from VAT, given that the VAT cannot be deducted (under the VAT Directive). However, under Luxembourg law, services provided by an independent group to its members are free of VAT—provided that the members' taxed activities do not exceed 30% (or 45% under certain conditions) of their annual turnover.

Luxembourg law also provides that:

  • Group members are allowed to deduct the amount of VAT charged to the group on its purchases of goods and services from third parties.
  • Operations by a member in his or her own name but on behalf of the group are regarded as outside the scope of VAT.

Under European law, in order to be exempt from VAT, the services provided by an independent group to its members must be directly required for their non-taxable or exempt activities. The Luxembourg rule, however, provides a ceiling for taxed operations and does not comply with EU law. Moreover, under EU law, group members would not be allowed to deduct VAT charged to the group.

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