On September 21st 2017, the European Court of Justice (the “ECJ”) rendered its judgements in three different cases regarding the interpretation of the VAT exemption of services supplied by independent groups of persons (“IGP”) to their members.
In the case Commission vs. Germany (C-616/15), the ECJ had to rule on the compliance with Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (the “VAT Directive”) of a national legislation restricting the availability of the exemption to IGPs, whose members are doctors, exercise paramedical professions or carry out activities in the health care sector.
The European Commission argued that, by introducing such a limitation to the scope of the IGP exemption, Germany failed to fulfil its obligations under Article 132 (1) (f) of the VAT Directive. In the Commission’s view, the exemption provided for by the aforementioned provision should cover all IGPs whose members carry on VAT exempt activities, including economic activities in the banking and insurance sector. Advocate General Melchior Wathelet supported this position (please refer to our May 2017 Newsletter) in his opinion. The Commission maintained that, even if the ECJ considered that the exemption only covers IGPs whose members carry out activities in the public interest, its scope should not be limited to the health care sector.
The ECJ dismissed the Commission’s main complaint and went against Advocate General Wathelet’s opinion. Noting that Article 132 (1) (f) appears in Chapter 2, entitled “Exemptions for certain activities in the public interest” of Title IX of the VAT Directive, the ECJ concluded that this particular heading indicates that the exemption only covers IGPs whose members carry on activities in the public interest. The structure of Title IX of the VAT Directive, which deals with “Exemptions” in general, furthermore supports the ECJ’s conclusion, as it is divided into different chapters, containing, besides the provisions on certain activities in the public interest laid down in Chapter 2, also “general provisions” (Chapter 1) and “exemptions for other activities” (Chapter 3). According to the ECJ, it has to be for a reason that Article 132 (1) (f) had been included in Chapter 2, as opposed to Chapters 1 and 3.
The ECJ however accepted the Commission’s alternative complaint and held that, in addition to the transactions carried out in the health sector, the VAT Directive envisages other exempt transactions in the public interest (such as for instance welfare and social security, education, sport and culture), which should thus also fall within the scope of the IGP exemption.
The two remaining decisions rendered by the ECJ on September 21st 2017 respectively confirmed that the VAT exemption does not apply to services supplied by IGPs whose members carry on activities in the area of financial services (C-326/15, DNB Banka AS) or insurance (C-605/15, Aviva).
Luxembourg will have to take into account the above mentioned decisions when adapting its legislation pursuant to the ruling dated May 4th 2017 (C-274/15), in which the ECJ considered the domestic implementation of the IGP exemption as too broad (please refer to our May 2017 Newsletter).