Independent groups of persons under CJEU scrutiny
Four cases dealing with VAT exemptions for independent groups of persons are currently before the Court of Justice of the European Union (CJEU) waiting for a ruling. The CJEU’s conclusions in these individual cases may strongly affect the conditions for claiming tax exemptions in the Czech Republic as well. Will these rulings bring a realistic chance for using independent groups of persons also in the financial sector?
In its final ruling in the Commission vs. Luxembourg case, CJEU concluded that tax exemptions for independent groups of persons cannot be limited only to groups whose members exclusively carry out tax exempt activities or activities in relation to which they are not taxable persons. Yet, this is precisely the interpretation constantly advocated by the Czech financial administration: in its opinion, a single Czech crown of taxable income automatically rules out a tax exemption, which makes the groups effectively unusable in practice. This is, however, in stark contrast to the CJEU’s opinion: it is convinced that the services of a group whose members also carry out taxable activities can be exempt to the extent to which the services are necessary for carrying out the non-taxable activities.
However, the financial sector should not get overexcited prematurely. The CJEU is yet to rule on the three other cases and will have to deal, among other things, with the applicability of the exemption on services of independent groups in the financial and insurance sectors. The advocates general have already published their opinions, yet have reached no agreement. According to Advocate General Kokott, the exemption cannot be applied in the financial sector at all. Contrariwise, Advocate General Wathelet is convinced that nothing prevents the exemption of group services in the financial and insurance services sector. Independent groups of persons are covered by VAT exemptions in the public interest (Article 132 of the Directive). Typically, this area includes healthcare, culture, and education. The heart of the dispute between the two advocates general is whether the exemption only applies to groups operating in these areas or not. We may yet have to wait for a definite answer.
Other issues that CJEU will have to clarify include, for instance, whether the groups can operate on a cross-border basis or whether they really have to have the form of a legal entity, as is required by the Czech VAT Act. Many such questions remain open, and some answers may even necessitate a change to VAT Act legislation.