ECJ – exemption for independent groups of persons (IGPs) within the meaning of § 6 para 1 no 28 Austrian VAT Act for banks and insurances called into question

Today the much-anticipated ECJ rulings on the exemption for IGPs within the meaning of § 6 para 1 no 28 Austrian VAT Act were published and will have a lasting effect on the Austrian banking and insurance industry. According to the rulings, the exemption is not applicable for banks and insurance companies.

Exemption not applicable for banks and insurance companies.

In the last months, four cases related to Article 132 para 1 lit f of the EU directive 2006/112/EC („IGP exemption“) were pending before the ECJ. For three of them, the rulings were published on September 21, 2017 (cases C-605/15, Aviva, C-326/15, DNB Banka and C-616/15, EC v Germany). The essence of those rulings is that the IGP exemption is not applicable for IGPs whose members perform an economic activity in the banking or insurance sector. The ECJ’s reasoning is based on the wording of the headline of Article 132 (“Exemptions for certain activities in the public interest”), but also on the general principle that VAT exemptions are to be interpreted strictly, since they constitute exceptions to a general principle. Therefore, the ECJ concludes that the IGP exemption is limited to IGPs whose members perform an activity in the public interest within the meaning of Art 132 of the EU directive 2006/112/EC (such as the provision of children’s or young people’s education or education provided by schools or universities).

Current legal situation.

§ 6 para 1 no 28 Austrian VAT Act stipulates the following three tax exemptions:

  1. Services performed by IGPs whose members perform mainly banking, insurance or pension fund services, to their members are tax exempt under certain conditions (invoicing at cost, direct use for tax exempt activities);
  2. Services provided by one taxpayer to another taxpayer are tax exempt under certain conditions, provided, that both perform mainly banking, insurance or pension fund services (e.g. services provided by one bank to another). According to the Austrian tax authorities, this exemption is also applicable to services performed by one IGP to another (inter-IGP services, see Austrian VAT Guidelines no 1017).
  3. Provision of personnel from an IGP member to the IGP.

The exemption for services provided by an IGP to their members (exemption 1) is based on Article 132 para 1 lit f of the EU directive 2006/112/EC. Before the publication of the opinion of Advocate General Kokott regarding the cases C-605/15, Aviva und C-326/15, DNB Banka, it was generally assumed that this exemption was in line with EU law. It turned out that this assessment is not supported by the recent ECJ rulings.

The exemption for services provided by one taxpayer to another (exemption 2) as well as the exemption for the provision of personnel (exemption 3) have no legal basis in EU law.

Consequences.

The ECJ rulings should have no direct consequences for taxpayers until their implementation in national law. EU directives that are less favorable for the taxpayer than the corresponding national laws may not be applied directly according to consistent EU case-law. By keeping the tax exemptions under § 6 para 1 no 28 Austrian VAT Act, Austria, however, would breach certain EU treaty obligations. This infringement could be challenged before the ECJ by the EU Commission or other Member States, with good prospects of success. It is therefore not excluded that § 6 para 1 no 28 is removed entirely from the Austrian VAT Act.

Need for action – challenges for banks and insurance companies.

The national VAT law changes currently looming on the horizon will have a massive impact on banks and insurance companies. The analysis of internal structures and alternative concepts should thus commence as soon as possible.

Possible winners.

Taxpayers who perform activities in the public interest within the meaning of Article 132 para 1 of the EU directive 2006/112/EC (e.g. provision of children’s or young people’s education or education provided by schools or universities) will most likely welcome the ECJ rulings. These taxpayers might have new options to form IGPs whose services might be tax exempt if provided to their members. to be checked in detail in case of international tax matters.

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Christian Bürgler

Christian Bürgler

Partner| Deloitte Tax
Telefon: +43 1 537 00 4940
Mail: cbuergler@deloitte.at

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