Case law
13 October 2017

Independent groups of persons and the financial sector

The end of September brought two ground-breaking rulings issued by the Court of Justice of the European Union (CJEU) that will significantly affect not only the financial sector. The CJEU judges finally provided their long-awaited answer to the question of whether independent groups of persons may also operate in the banking and insurance sectors, an issue on which both the professional public and the advocates general could not reach agreement.

Ladislav Malůšek
Jana Fuksová

The CJEU had to deal with a number of cases regarding VAT exemptions for independent groups of persons. The court’s rulings were expected to positively affect the utilisation of such groups in the Czech financial market. This potential, however, has remained unfulfilled, as in its rulings in cases C-605/15 Aviva and C-326/15 DNB Bank, the court surprisingly held that the VAT exemptions may not be applied to the financial and insurance sectors. The CJEU thus diverted from its implicit conclusions on the C-8/01 Taksatorringen case from 2003, dealing with associations of small and medium-size insurance companies. At that time, while the court held that a particular exemption of an independent group of persons must not threaten competition, it did not reject its existence in the insurance sector.

In its reasoning, the CJEU mainly focused on the classification of independent groups of persons within the VAT Directive system, emphasising that all exemptions represent exceptions from a general rule and that their interpretation should be as narrow as possible. The CJEU concluded that independent groups of persons may only function in relation to services that are exempt in the public interest (pursuant to Article 132 of the VAT Directive). This usually involves sectors such as healthcare and education.

The judges were probably aware of the importance of their rulings in some countries and, consequently, added to the final parts of their rulings that it was not possible to challenge periods already closed. They also held that the financial administrations may not rely on the direct effects of the directive against taxpayers. However, the Czech financial market need not worry about this as it commonly uses VAT groups rather than independent groups of persons.

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