Former Belgian VAT exemption for ‘independent groups of persons’ was too restrictive
On 20 November 2019, the Court of Justice of the European Union (CJEU) ruled in the case of Infohos (C-400/18) that the former version of the Belgian VAT exemption for ‘independent groups of persons’ (hereinafter IGP) goes against EU law when it denied the application of the exemption to a group that provided services also to non-members. The CJEU’s decision broadens the previous scope of application of this VAT exemption in Belgium and it remains to be seen what the impact will be on the since mid-2016 adjusted scope of the exemption.
An IGP could only provide services to its members until mid-2016
The VAT exemption for independent groups of persons (also referred to as the exemption for cost sharing associations) is available to groups of VAT exempt enterprises and non-taxable persons that carry on activities in the public interest. Under the former Belgian legislation, one of the requirements for the application of the exemption was that the group provided services exclusively to its members. As a result, when a group also provided services to non-members, it was subject to VAT with regard to all its services, including those provided to members, and was fully excluded from the application of the VAT exemption.
Infohos was an association that specialized in information technology for hospitals and provided services to members as well as to non-members. Also, it signed a cooperation agreement with the IHC-Group to develop new software applications for its member hospitals. Infohos was not registered for VAT in Belgium because it considered itself as a non VAT taxable person or, at least, as an exempt independent group of persons. The Belgian VAT authorities, however, considered IHC-Group as a third party and claimed that the mutual provision of services between Infohos and IHC-Group are subject to VAT. As a result of the provision of these services to IHC-Group (non-member), Infohos was not entitled to apply the above exemption to any of its services. Under these circumstances and in light of the former Belgian legislation, the case was referred to the CJEU.
Restricting the scope of an exemption requires sound reasons, not generic excuses
The CJEU recalled that Member States are entitled to establish requirements for a correct and simple implementation of the exemption for independent groups of persons within the context and the aim of the VAT Directive. Accordingly, the CJEU considered the following arguments:
- Context and aim of the VAT exemption for independent groups of persons: neither the context nor the aim of the VAT exemption in the VAT Directive suggest that the scope of application of the exemption is restricted to independent groups of persons that exclusively provide services to members. A denial of the VAT exemption only on the ground that a group provides services also to non-members, cannot be justified by the aim of the VAT Directive.
- Distortion of competition: the Belgian legislation implies a general assumption of distortion of competition. However, the argument of distortion of competition cannot justify a limitation in general terms to the scope of the VAT exemption. By denying the VAT exemption in all cases when an independent group of persons provides services also to non-members, the scope of the VAT exemption was limited in general terms.
- Prevention of fraud, evasion and avoidance: the requirements for the application of the VAT exemption in order to prevent fraud, evasion and avoidance, may not pertain to the description of the content of the VAT exemption. This is, however, the effect of the Belgian legislation with respect to independent groups of persons providing services to non-members, as the legislation implies a general irrefutable presumption of fraud, abuse and evasion, without specifying what type of fraud, evasion or abuse is aimed to be prevented.
A reasoning that can be used in a broader context
Based on the above arguments, the CJEU concluded that the former Belgian implementation of the VAT exemption for independent groups of persons was against EU law when the application of the exemption was conditional on the fact that independent groups of persons only provide services to their members.
The CJEU’s decision should broaden the scope of the exemption in the Belgian context. Its reasoning may also have an impact in the following cases:
- Pending discussions and litigations with the Belgian tax authorities on the application of VAT the exemption of independent groups of persons;
- Applicable legislation of other Member States that implement this VAT exemption;
- Belgian regulations that contain provisions related to the distortion of competition and prevention of fraud, evasion and abuse, including o. the current rules on the application of the VAT exemption for independent groups of persons.