Independent Group of Persons – More disruption than ever?
IGP’s – a newly adjusted concept in Belgium…
In Belgium, a new provision on the VAT exemption of the Independent Group of Persons (“IGP”, also called Cost Sharing Groups) came into force on 1 July 2016. Further explained by the VAT authorities in a circular letter of 12 December 2016, it therefore resulted in adjustments in the numerous existing IGP in the beginning of 2017. Yet, this new regime might very well be amended again based upon the reasoning held on 21 September 2017 by the Court of Justice of the European Union (“CJEU”) in the cases Aviva (C-605/15), DNB Banka (C-326/15) and Commission Germany (C-616/15).
... which was still discussed at EU level
These rulings were much awaited to the extent that, within a month, they had been the theater of contradictory conclusions respectively drafted by Advocate General Kokott (in the cases Aviva and DNB Banka) and Wathelet (in the case Commission Germany). The former opined that the exemption could apply neither to the financial and insurance sector, nor in an international context. Such stance would greatly limit the relevance of the IGP since it is in practice mostly used in the financial and insurance sector, sometimes in an international context. Mr Wathelet, on the contrary, saw no reason to limit the scope of the IGP exemption to a specific economic sector, such as is the case in Germany where it applies only to the medical sector.
The Court settled it: no IGP for the financial or insurance sectors
The CJUE settled it! It ruled on the basis of the structure of the VAT Directive! It underlines that the IGP exemption of article 132, 1(f) is placed within Chapter 2 of title IX “Exemptions for certain activities in the public interest”. On the contrary, the financial and insurance activities are grouped in article 135 within Chapter 3 “Exemptions for other activities”. According to the Court, the IGP exemption, since it relates to article 132, 1(f) is not meant to apply to “other activities” that benefit from their own exemptions. Contrary to e.g. the non for profit or hospital sectors, the financial and insurance sectors will therefore no more be able to apply the IGP exemption, which amounts to a real revolution in Belgium!
Quid for the current Belgian IGP’s?
The CJUE is well aware of the unexpected character of this interpretation and knows that its own case-law may have led Member States and taxpayers to act otherwise (the Taksatorringen case C-8/01 of 20 November 2003 related to a IGP in the insurance sector). The Court therefore expressly limited the impact of these rulings, which in itself is seldom enough to notice. It reminds indeed that the Directive cannot be invoked against the taxpayers by the Member State if their rules allow said taxpayers to apply the IGP exemption. The legal certainty and non-retroactivity principles thus prevail on the interpretation of these rulings, a fortiori with respect to closed tax periods.
We will therefore await whether and how the Belgian rules are amended by the VAT authorities… In the meanwhile, solutions for the banking and insurance sectors have to be considered in order to obviate the exposure to VAT additional costs that result from these rulings. Do not hesitate to contact KPMG to discuss this issues and the potential alternatives to consider.
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Department: Indirect Tax