As an instrument, the cost-sharing association gives entities, which either have no right or only a limited right to deduct VAT the opportunity, to set-off costs under the VAT exemption. Using this VAT exemption, common costs, such as services provided by third parties and personnel costs, can be set-off and be exempt from VAT. This instrument was and is still commonly used within the financial services, insurance, non-profit, medical services and health care, government and real estate sectors. Recently, the requirements laid down in the Belgian legislation were significantly changed.
The importance of this VAT exemption has somewhat decreased in Belgium since the VAT group was introduced. Nonetheless, the cost-sharing association is still relevant in situations where a VAT group would not offer a solution, e.g. where the required conditions are not met, or when an entity could not enter the VAT group (e.g. passive holdings, public body) or in the case of a cross-border context.
Following a number of legal questions that were brought before the Court of Justice of the European Union in three cases (C-605/15, Aviva; C-616/15, Commission against Germany; and C-326/15, DNB Banka), discussion was raised about the concrete scope of the VAT exemption. Amongst other things, the question was raised about whether the VAT exemption applies to cost-sharing in the financial and insurance sectors.
These cases have been even more remarkable since opposing opinions were delivered on the same issues by the different Advocates-General handling the various cases: Advocate-General Kokott clearly stated that the scope of the VAT exemption must be restricted to a group of entities whose activity is carried out in the public interest, of which financial services and insurance activities are excluded; while by contrast, Advocate-General Wathelet favoured a broad interpretation of the VAT exemption, including the activities of the financial and insurance sectors.
In three relatively short judgments, the CJEU now supports Advocate-General Kokott’s strict vision. For VAT-exempt activities, the CJEU has restricted the scope of the VAT exemption for cost-sharing associations to persons who perform an activity that is exempt in the public interest (see Article 132 of the VAT directive/Article 44, §§1 and 2 of the Belgian VAT code). These activities, in general, concern: medical services; hospitals; social work; education; the exploitation of sports infrastructure; libraries; access to museums, monuments, …; the organisation of exhibitions/concerts; artists. Other exempt activities, in particular activities qualifying under the VAT exemption for financial or insurance activities, can no longer benefit from the cost-sharing association exemption (Articles 135, 136 and 137 of the VAT directive/Article 44, §3 and Article 44bis of the Belgian VAT code).
It is clear that these judgments are raising a lot of concern in the financial and insurance sectors. However, in our view the impact of these judgments goes even further:
- Entities conducting activities in real estate that are VAT-exempt can no longer benefit from VAT exemption since these activities are again not considered to be exempt “in the public interest”.
- It is unclear whether the VAT exemption still applies in full within the public sector. The provisions here are rather vague as, on the one hand, they refer to entities performing activities that are not VAT taxable, such as governments, while, on the other hand, governmental activities are not listed under the exemptions in the public interest.
- The same remark (as in the previous point) can be made for passive holdings that are outside the scope of VAT.
As noted above, the VAT grouping instrument can offer a solution in Belgium for organising a cost-sharing structure while avoiding a VAT cost. The VAT grouping alternative, however, requires a financial, organisational and economic link. Furthermore, VAT grouping will not always offer a valid solution (e.g. in the public sector, passive holdings). VAT grouping must be examined carefully on a case-by-case basis.
In our view the current Belgian VAT exemption for cost-sharing associations (Article 44, §2bis of the Belgian VAT code) still allows a broad application of the VAT exemption, also within the financial, insurance and real estate sectors. This is because the text of Article 44, §2bis of the Belgian VAT code refers to all activities that are VAT-exempt based on Article 44 of the Belgian VAT code, including the exemptions applying to real estate transactions and financial services. Therefore, in our view, taxable persons could still rely on the Belgian VAT exemption, until this is adapted by the legislator.
For further information, please contact our VAT team:
Stijn Vastmans (email@example.com)
Stein De Maeijer (firstname.lastname@example.org)
Gert Vranckx (email@example.com)
Loulou Geboers (firstname.lastname@example.org)