In Infohos (C-400/18), the Advocate General considered what conditions Member States are allowed to impose on the availability of the cost-sharing group exemption. The Principal VAT Directive says that conditions can be imposed for the purpose of ensuring the correct and straightforward application of the exemption and to prevent possible evasion, avoidance or abuse.

Infohos is an association established to provide IT services to a group of Belgian hospitals. Belgian law provided that, as Infohos had made supplies to nonmembers, it was not entitled to the benefit of the cost-sharing exemption, with the consequence that supplies to its members were subject to VAT. The question was whether the national tax authority was allowed to make the exemption conditional on the group making supplies exclusively to members of the group. The European Commission intervened and argued that such a condition was not justified on grounds of preventing the distortion of competition. The Advocate General agreed and said that Member States are not permitted to deny the cost-sharing exemption from applying where an independent group supplies services to persons who are not members as well as members. Instead of a blanket denial of the exemption, the national courts should check that the supplies made to nonmembers form the minority of the supplies made by the group and that there are reasons of technical efficiency for the supplies to nonmembers from which members might also benefit.

DLA Piper comment: We agree with the Advocate General in the view that an existence of a distortion of competition cannot be predetermined by the law in the abstract for certain sectors. The EU VAT rules, therefore, do not allow the national legislature discretion regarding the introduction of an abstract provision that dispenses with a specific assessment of the distortion of competition. Hence, the CJEU will have good grounds to follow the Advocate General to set aside a provision that makes a general and rigid rule beyond the scope of the Principal VAT Directive in order not to distort competition. Such rules, which leave no room for the court to assess whether a supply of services to third parties distorts competition in the particular market in question, cannot be regarded as in line with the principles of VAT neutrality.