The European Commission has decided to take Luxembourg to the EU’s Court of Justice on the grounds that Luxemburg’s cost sharing exemption rules are incompatible with EU law.

Under Luxembourg law, the 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. Group members are also allowed to deduct the VAT charged to the group on its purchases of goods and services from third parties. In addition, 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. According to the Commission, the Luxembourg rule providing for a ceiling for taxed operations does not fulfil this condition and group members should not be allowed to deduct VAT charged to the group.

For further details see the Commission’s press release.