Bringing you the latest news on VAT
Input is your Deloitte guide to everything related to VAT in Luxembourg.
Input - January 2019
On 24 January 2019, the Court of Justice of the European Union (“the CJEU”) in the “Morgan Stanley” case (C-165/17) has confirmed that branches which incur VAT on expenses used wholly or partly for head office supplies, must consider the activity of the head office for the purposes of determining the branch VAT recovery calculation.
Input - November 2018
On 8 November 2018, the Court has ruled in its C&D Foods decision (C-502/17) that a holding company, which invoices services to its sub-subsidiary, could not deduct the VAT incurred on the intended sales of shares of its subsidiary and sub-subsidiary. The Court bases its decision because the essential reason of the sale was to help the financial situation of the new proprietor of the company and on the absence of direct and immediate link of the VAT incurred with the taxable activities of the company. This decision contrasts with the recent decision RyanAir (C-249/17, 17 October 2018) where the Court accepted the deduction of the VAT incurred on costs related to an aborted acquisition of shares (see our input issued on 17 October 2018). It also diverges from the traditional holding jurisprudence. More importantly, the concept of “essential reason of the transaction” might further complicate the question of the VAT deduction for all taxpayers.
Input - October 2018
On 17 October 2018, the Court of Justice of the European Union (CJEU) ruled that a company could recover VAT on costs relating to an aborted acquisition of shares in another company to the extent that, based on objective elements, this company had the intention to provide management services subject to VAT to the acquired company (RyanAir, C-249/17). The decision of the Court is certainly an important evolution in its jurisprudence and should be examined with attention by Luxembourg holding companies that might be in a similar position even if each individual situation must be examined taking all relevant elements into account.
The introduction of the VAT group regime by the law of 6 August 2018 is certainly the most important VAT change of the year. However, this should not hide other changes that are also of importance for economic operators of different sectors. After a reminder of our VAT alert of April and July, we examine hereafter these different changes.
VAT group law voted by the Luxembourg Parliament
As announced in our newsletter of 16 April 2018, the Luxembourg Parliament has voted on 26 July 2018 on the draft bill n°7278 to introduce the VAT group into Luxembourg legislation. On 27 July, the State Council has given his agreement that the Parliamentary should not proceed to a second vote of the law. This makes the law definitive and close the Parliamentary process. The law enters in force on 31 July 2018. Compared to the draft bill, the voted law does not allow anymore the VAT authorities to exclude some members when their participation to the group may lead to a distortion of concurrence. We could consider this change as favorable for the legal certainty of the regime and have no other change to mention.
VAT group: draft bill lodged with the Parliament
On 16 April 2018 , the Luxembourg government has lodged with the Parliament the draft bill introducing the VAT group. Long awaited, this regime aims to avoid VAT on transactions between persons closely bound by financial, economic, and organizational links. While available and interesting for all sectors of activities, this regime is especially attractive for the financial sector, which has been affected by the decisions of the European Court of Justice of 21 September 2017, which refused this sector the benefit of the independent group of persons regime.
New VAT rules for online businesses
On 5 December 2017, the European Council adopted new VAT rules for online businesses. The new rules reinforce the taxation of goods and services in the country of the non-taxable customer and the use by the businesses of the mini “one-stop” shop (MOSS), i.e. a web portal existing in each EU member state. Additionally, the new rules align the treatment of goods and services purchased online and impose new obligations to online platforms.
VAT & Costs Sharing Exemption
On 21 September 2017, the Court of Justice of the European Union (CJEU) has delivered the rulings on three cases regarding “independent group of persons” (IGP) regime. This regime allows the sharing in a VAT free manner of services such as administrative, accounting or IT ones between persons who could not or only partly recover VAT on their costs. It is thus often used by the financial sector. These rulings substantially narrow the scope of the IGP and prohibit the financial sector to use it. It is therefore necessary that Luxembourg introduce the VAT group regime (unité TVA), already in use in several other Member States.
Independent Group of Persons: Decision of the Court of Justice of the European Union
On 4 May 2017, the Court of Justice of the European Union (the Court) rendered its judgement in Case C-274/15 European Commission v Luxembourg. In this judgement, the Court essentially upholds the infraction proceedings brought by the Commission against Luxembourg and declares that the Luxembourg legislative regime determining the application of the VAT exemption for independent groups of persons does not comply with the VAT Directive. The decision of the Court is in line with the conclusions of the Advocate General (AG) which were released on 6 October 2016.
Opinion of the Advocate General in Case C-650/16
The exemption for services supplied by an independent group of persons is not limited to the (para) medical sector
Status of Special Limited Partnership (SCSp) and its General Partner (GP)
On 8 February 2017, the Luxembourg Private Equity Association has released important communication regarding the VAT status of the Special Limited Partnership (SCSp) and its General Partner (GP).
Real estate changes as of 1 January 2017
EU regulation regarding the place of supply of services connected with immovable properties for VAT and the abolition of the obligation to register a rental agreement.
VAT changes as of 1 January 2017: increase of penalties and joint liability of persons in charge of management
The tax reform introduces substantial increases of penalties applicable in case of infringement of the VAT law. It also introduces a joint liability of the persons in charge of management. These changes are applicable as of 1 January 2017.
European Commission proposes changed VAT rules for e-Commerce
The European Commission published on 1 December 2016 its legislative proposal to drastically change the VAT rules for online sales of goods and services in Europe, over the 2018-2021 period.
The proposed rules still have to be adopted by the European Council, which is foreseen in the course of 2017, before they can be implemented on national level.
Independent Group of Persons: Opinion of the Advocate General of the Court of Justice of the European Union
The European Commission has raised a challenge toward Luxembourg’s transposition of the VAT exemption provided for services of independent group of persons (IGP) under Article 132(1)(f) of the EC VAT Directive 2006/112. This exemption is also often referred as the cost-sharing exemption.
Director fees: Circular of the Luxembourg VAT Authorities published
On September 30, 2016, the Luxembourg VAT authorities have published the Circular n° 781 regarding the VAT treatment of director services and a comprehensive list of “frequently asked questions” available, in French, on their website.
The Circular confirms that director services constitute an economic activity granting the status of taxable person for VAT purposes
Mandatory change of filing platform for VAT returns – eCDF
As from 1st January 2017, the use of the eCDF platform will be mandatory for the filing of periodic and annual VAT returns. The eCDF platform has been accessible for the filing of the VAT returns from the beginning of this year and throughout 2016 taxpayers have had the option to file their VAT returns either through the eCDF or through the eTVA platform. This option is not available in respect of EC Sales Lists, however, which can currently only be filed though the eTVA platform.
Input - February 2016
Director fees - 2016 VAT & TAX update
The Luxembourg VAT Authorities recently confirmed that Independent Director services fall within the scope of VAT. Therefore, it means that their services are VAT taxable (17%) if rendered to Luxembourg entities and if no VAT exemption applies. This position affects many Directors who considered (based on the market practice) that their services were “out of the scope” of VAT.
On 9 December 2015, the Court of Justice of the European Union (CJEU) delivered its decision in the Fiscale Eenheid X NV case (C-595/13) regarding the criteria to be used to determine whether certain entities and services are eligible for exemption from VAT as being services of management of investment funds1. In its decision, the Court only partly follows the conclusions of A.G. Kokott, as per her opinion released on 21 May 2015. This decision addresses the limits to the scope of the fund management exemption and may have a direct impact on how this VAT exemption is applied in practice.
1 Article 135.1.g. of the EU VAT Directive 2006/112 implemented in article 44.1.d) of the Luxembourg VAT law
Input - November 2015
On 11th November 2015, the VAT Committee published guidelines regarding the VAT treatment applicable to crowdfunding transactions. Nowadays, crowdfunding is becoming more and more popular and it is often seen as a space of freedom, safe from the usual legal and tax rules applicable to more traditional funding, thanks to its “participative” character. Despite this perception, however, these legal and tax rules do remain applicable and the publication of the VAT Committee guidelines regarding crowdfunding on 11th November 2015 is a useful reminder of this.
Input - October 2015
On 22 October 2015, the Court of Justice of the European Union (CJEU) ruled in the Hedqvist case (C-264/14) that exchange of the virtual currency bitcoins for conventional currencies are VAT exempt. This decision ends uncertainties regarding the VAT regime, avoids substantial VAT costs, ensures a level playing field in the EU and waives a threat on the competiveness of the EU industry in this global activity.