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ECJ Case C-77/19 (Kaplan International colleges UK) – Questions – Territorial scope of the cost-sharing groups exemption

Source: minbuza.nl (Dutch)

  • KIC is a member of the Kaplangroep, which offers education and career services.
  • HMRC has confirmed to KIC that its subsidiaries are eligible for qualification as “colleges of a university” in accordance with UK provisions transposing Article 132 (1) (i) of the VAT Directive.
  • The Kaplancolleges may therefore regard the educational services that they provide to students as exempt from VAT.
  • In October 2014, the Kaplangroep established KPS in Hong Kong.
  • No VAT is charged on services provided to KPS by agents or representative offices and on services provided by KPS itself.
  • HMRC argues that the services that KIC receives from KPS do not fall within the scope of the VAT exemption for cost-sharing groups and are therefore subject to the reverse charge.
  • KIC argues that the services provided by KPS fall within the scope of the exemption for services provided by cost-sharing groups to their members, and that KIC, as the representative member of the VAT group, so it is not obliged to pay the VAT on those services in accordance with the reverse charge arrangement.
  • The Court has not yet clarified the territorial scope of the cost-sharing groups exemption or ruled on the correct application of the requirement that the exemption should not lead to distortion of competition in the cross-border provision of services where the cost-sharing groups is located outside the EU.
  • In Cases C-326/15 and C-605/15, the territorial scope of the cost-sharing groups exemption was not dealt with in the Court’s judgments, since that assessment was not necessary.

Preliminary rulings:

  1. What is the territorial scope of the exemption provided for in Article 132 (1) (f) of Council Directive 2006/112 / EC? In particular, (i) does this exemption apply to a cost-sharing group established in a Member State other than the Member State (s) where the members of the cost-sharing group are established? And if so, (ii) does it also apply to a cost-sharing group established outside the European Union?
  2. If the cost-sharing group exemption applies in principle to an entity established in a Member State other than one or more members of the cost-sharing group, as well as to a cost-sharing group established outside the European Union, how should the criterion be used? applied that the exemption should not lead to distortion of competition? In particular:
    (a) Does this criterion concern potential disruption affecting other recipients of similar services that are not members of the cost-sharing group, or is it only possible disruption that affects any alternative service providers to the cost-sharing group members?
    b) If it only concerns other recipients, then there is a real possibility of distortion of competition if other recipients who are not members of the cost-sharing group can request to become a member of the relevant cost-sharing group, or their own cost-sharing group to establish similar services, or obtain equivalent VAT savings through other methods (for example, by setting up a branch in the Member State or third country in question?
    c) If it only concerns other providers, the real possibility of distortion of competition must be assessed by determining whether the cost-sharing group is sure to retain its members as customers, regardless of whether VAT can be claimed exemption, and should it therefore be assessed on the basis of the access of alternative providers to the national market in which the cost-sharing group members are established? If so, does it affect whether the cost-sharing group is sure to retain its members as customers because they are members of the same group?
    d) Should potential distortions of competition at national level be assessed on the basis of alternative providers in the third country where the cost-sharing group is located?
    e) Does the tax authorities in the European Union applying the VAT Directive bear the burden of proof of the likelihood of a distortion of competition?
    f) Should the tax authorities in the European Union order a specific expert assessment of the market of the third country where the cost-sharing group is located?
    g) Can the existence of a real potential for distortion of competition be established by the identification of a commercial market in the third country?
  3. Can the cost-sharing group exemption be applied in the circumstances of the present case where the cost-sharing group members are economically, financially or organisationally linked?
  4. Can the cost-sharing group exemption be applied in circumstances where members have set up a VAT group that constitutes a single taxable person? Is it important that KIC, the representative member to whom (under national law) the services are provided, is not a member of the cost-sharing group? If that is important, is that interest then undone by national legislation which stipulates that the representative member has the characteristics and status of the cost-sharing group members for the purposes of applying the cost-sharing group exemption?

Cited (recent) case law: C-326/15 DNB Banka; C-605/15 Aviva; C-8/01 Taksator rings / Skatteministerie

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