VAT: Judgement On Luxembourg Independent Group Of Persons regime

Under Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax as amended ("VAT Directive"), services provided by a taxable person (company or individual) are subject to VAT. However, Article 132(1)(f) provides an exemption, under certain conditions, for services rendered by an independent group of persons ("IGP") to its members, which has been literally implemented into Luxembourg VAT Law 1and further specified in the Grand Ducal Regulation of 21 January 2004.

In its judgment of 4 May 2017 , the Court of Justice of the European Union ("ECJ") ruled that Luxembourg's extensive interpretation of the IGP regime had led to an implementation of the exemption that was not in line with the VAT Directive.

Following the arguments of the European Commission which initiated the infringement procedure against Luxembourg, the ECJ held three grounds for complaint:

(1) It follows from the wording of Article 132(1)(f) that the exemption applies to the supply of services by an IGP to its members provided that (i) the services are directly necessary for the exercise of the member's activities and (ii) that these activities are either exempt or concern those members that are not taxable persons.

The current Luxembourg IGP regime extends the benefit of the exemption to members of the IGP who also carry out taxable activities, under the sole condition that their annual turnover free of VAT derived from these taxable activities does not exceed 30% (or 45% in certain cases) of the member's total annual turnover free of VAT related to all their taxable and exempt activities.

The ECJ ruled that the IGP regime does not prevent members of an IGP from exercising taxable activities. However, such members may only benefit from the exemption, "in so far as those services are directly...