Details

  • Service: Tax, Global Indirect Tax, Global Compliance Management Services
  • Type: Regulatory update
  • Date: 1/27/2012

Luxembourg - Rules allowing VAT exemption for services provided by independent groups of persons to members do not comply with EU law 

January 27:   The European Commission issued a “reasoned opinion” to Luxembourg requesting a change to the value added tax (VAT) rules as applied with respect to independent groups of persons.

According to an EC release (IP/12/63, 26 January 2012), Luxembourg's current rules are incompatible with European Union law. Under Luxembourg law, services provided by an independent group to its members are not subject to VAT, as long as the members' taxed activities do not exceed 30% of their annual turnover (or 45% under certain conditions). Group members are also allowed to deduct the amount of VAT charged to the group on its purchases of goods and services, and operations by a group member in his or her own name— but on behalf of the group—are treated as non-taxable.


Under European law, 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. As noted by the EC, the Luxembourg rules providing for a ceiling for “taxed operations” do not meet this condition. Also, under EU law, the group's exempt activities must be linked exclusively to the exempt activities of group members, and group members cannot deduct VAT charged to the group. The EC also found that Luxembourg rules do not take into account the application of EU VAT law to operations by intermediaries.


The EC ”reasoned opinion” (the second step of EU infringement proceedings) gives Luxembourg two months to bring its rules into compliance with EU law; otherwise, the EC may refer the matter to the European Court of Justice.




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