The End of the Cost Sharing Group VAT exemption for FSI businesses?

In two opinions delivered on March 1st, 2017 (DNB BANKA C-326/15 and AVIVA C-605/15), the Advocate General KOKOTT considers that the insurance and financial sectors are not entitled to benefit from the VAT exemption provided for independent groups of persons. The VAT exemption would indeed be limited to public-interest sectors mentioned in article 132 of the VAT Directive (e.g. medical treatment).

In opinions argued lengthily and notably based on practical considerations, the Advocate General also demonstrates the absence of cross-border implementation of this VAT exemption, especially in the case where the group is located outside the EU, which would lead, according to the AG, to tax optimizations unwanted by the EU legislator.

At national level, a group of companies could also not, a priori, be regarded as a VAT exempt group. Indeed, even if an “independent group of persons” does not necessarily entail being a legal person, it nevertheless must consist in a VAT taxable person, which implies to fulfil an “independence” condition in relation to its members (within the meaning of article 9 of the VAT Directive) and, to that end, to have its own assets. According to the AG, a group of related companies which provide each other services does not constitute, a priori, a VAT exempt group.

« On the bright side », we do note the proposal to retain:

  • A direct effect of the exemption provisions which could therefore be invoked even if a Member State did not transpose them into national law;
  • A strict interpretation of the condition relating to the absence of distortion of competition which is understood as examining whether the group can be assured of keeping its members’ custom even without the VAT exemption.

Point of attention:

The AG states that the VAT group effect (within the meaning of article 11 of the VAT Directive) cannot be extended beyond the territorial borders of the Member States since VAT revenue in the other Member State must not be adversely affected (AVIVA § 59). One immediately thinks of the issue relating to the effects in France of foreign VAT groups, arising from the SKANDIA decision.


If the AG’s analysis were to be confirmed as regards the exclusion of the financial and insurance sectors, the VAT group would become the only recourse allowing to neutralize transactions between companies belonging to the same group. For now, France has not transposed this mechanism into national law.

In terms of cooperation between companies belonging to different groups, the VAT Directive would need to be amended in order to regain a suitable VAT exempt cooperation mechanism.

William Stemmer

William Stemmer, Partner, has more than 20 years’ experience in Indirect Tax matters. William particularly specializes in the real estate sector. William carries out many training courses on VAT aspects […]