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Luxembourg faces ECJ on VAT services to groups

  • Feb 23, 2014 | Richard Asquith

Luxembourg faces ECJ on VAT services to groups

Luxembourg is to be taken to the European Court of Justice (ECJ) by the European Commission because of its rules on the allowance of VAT deductions between members of independent groups.  This comes despite Luxembourg making a number of changes to its regime in 2012 to address the EC’s concerns in this area.

VAT exemption on independent groups

The EU VAT Directive permits an exemption from VAT normally charged on services to nominated groups of companies where the members of the group are exempt (or partially exempt) themselves so would ordinarily not be permitted to reclaim such VAT.

The purpose of these groups is to encourage exempt companies to seek efficiencies in areas such as back office administration and IT services by pooling their needs with other such companies with outsourcing companies.  They are popular in financial services and insurance industries.

The Luxembourg interpretation of this rule allows for the exemption provided that up to between 30% and 45% of the members’ activities are Luxembourg VAT exempt.  However, this ceiling is not provided for in the EU VAT Directive.  Instead, it requires that the activities provided must be directly applied for the non-VAT activities of the members.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He can be contacted at: He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.