In European Commission v the Grandy Duchy of Luxembourg2 , the Court of Justice of the European Union (CJEU) found that the Luxembourg provisions on cost sharing did not properly implement the Principal VAT Directive.


Under EU law, the services provided by taxable persons (companies or individuals) are usually subject to VAT. However, the VAT Directive 2006/112/EC provides, under certain circumstances, for an exemption for services supplied by independent groups of persons (IGPs) (commonly referred to as the cost-sharing VAT exemption).

Under Luxembourg VAT law, the services provided by an IGP to its members are exempt from VAT not only where those services are directly necessary to the non-taxable activities of the members, but also where the share of the members’ taxed activities (activities subject to VAT) does not exceed 30% of their total annual turnover.

The Commission challenged the conditions of the VAT exemption in Luxembourg in relation to IGPs. In the view of the Commission, Luxembourg VAT law had failed to conform and was not compatible with the VAT Directive.

The Commission brought infringement proceedings against Luxembourg before the CJEU.

On 6 October 2016, Advocate General Kokott released her opinion, in which she agreed with the Commission that various aspects of the Luxembourg VAT rules were incompatible with European law.

CJEU’s judgment

The CJEU agreed with Advocate General Kokott’s earlier opinion that Luxembourg’s VAT law on the cost sharing exemption in Article 132(1)(f), is ultra vires.

In reaching its conclusion, the CJEU said that the wording of the VAT Directive was clear, only the services rendered by an IGP and directly necessary for the exercise of the exempt activities of its members may fall outside the scope of VAT. Accordingly, by providing that the services rendered by an IGP to its members are exempt from VAT where the share of the members’ taxed activities does not exceed 30% (or 45%) of their annual turnover, Luxembourg had not correctly transposed the VAT Directive.

The CJEU stressed that the IGP is an independent taxable person, which provides services independently to its members from which it is separate. In the light of this, members may not, contrary to what Luxembourg VAT law permitted, deduct from the amount of VAT which they are liable to pay, the VAT payable or paid in respect of goods or services provided to the IGP.

The CJEU said that, because of the IGP’s independence from its members, any transactions between the IGP and one of its members must be regarded as a transaction between two taxable persons and thus as falling within the scope of VAT. It followed that Luxembourg had, in this respect, failed properly to transpose the VAT Directive by providing that the transactions carried out by a member in his name, but on behalf of the group, may fall outside the scope of VAT for the group.


This is the first decision from the CJEU concerning IGPs and it has adopted a strict interpretation of the relevant provisions. The implications of this judgment will impact beyond Luxembourg as other EU Member States have interpreted and implemented the IGP rules differently.

The CJEU’s judgment may lead to the remodelling of existing structures although further uncertainty for taxpayers is likely with three other pending cases awaiting judgments on the same subject matter (Federal Republic of Germany, DNB Banka and Aviva).

A copy of the judgment is available to view here.