Current VAT status “Cost Sharing Associations” in Belgium
Less than a year ago, the conditions to set-up an “Independent Group of Persons” (formerly known as a Cost Sharing Association) were amended in Belgium through the publication of the Circular Letter N° 127.540 of 12 December 2016 and the entry into force of the new article 44, §2bis of the Belgian VAT Code.
Due to the fact that, henceforth, an Independent Group of Persons can also provide services to non-members and that the members are no longer obligated to exclusively perform exempt or non-taxable activities (predominant performance of such activities will now suffice), the legal concept of the Cost Sharing Association has now revived as a means to pool services for the common interest of the members without generating an additional VAT cost. Moreover, the establishment of such an association has now been rediscovered in certain industries as a (cross-border) alternative to VAT Grouping.
Judgement of the Court of Justice
In the cases DNB Banka (C-326/15), Aviva (C-605/15) and EC (C-616/15) the Court ruled that the VAT exemption for Cost Sharing Associations is only applicable when the members of the Association perform “services of general interest”, such as medical services, welfare and social security, education, exploitation of sports and cultural institutions etc.
Taking into account the structure and content of the Council Directive 2006/112/EC, but also the objectives and context of the arrangement, the Court agreed with the narrow view of the Advocate General, implying that the VAT exemption for services of Cost Sharing Associations should be restricted to groups whose members perform activities of general interest. From this the Court concluded that Member States who also allow the VAT exemption for Cost Sharing Associations performing services to members active in the insurance and financial industry apply a too broad interpretation.
Impact in Belgium
The role of the Court of Justice is to clarify the way in which the European law must be interpreted. The Court is well aware of the shock wave its rulings could cause and therefore encourages the Member States to amend their legislation before excluding existing structures from the VAT exemption.
An immediate or retroactive withdrawal of the VAT exemption for services rendered by existing Cost Sharing Associations to their members active in the Belgian financial or insurance sector is not to be expected.
Nevertheless we have to follow-up closely to learn if and to what extent the Belgian VAT authorities will adjust the (broad) scope of the VAT exemption for Cost Sharing Associations. An adjustment could not only have significant consequences for the financial and insurance industry, but also for the real estate and in some cases even for the public sector.
On 27 September 2017, the Belgian VAT Authorities announced that they are investigating the possible consequences of these judgements on the current Belgian regulations regarding the VAT exemption for Cost Sharing Associations.
Questions regarding this subject can be addressed to one of our VAT specialists, or you can send an e-mail to [email protected] :