Flashback on ECJ Cases – C-605/15 (Aviva) – Only non-profit-making cost sharing associations are VAT exempt

On September 21, 2017, the ECJ issued its decision in the the case C-605/15 (Aviva).

Context: Reference for a preliminary ruling — Taxation — Value added tax — Directive 2006/112/EC — Article 132(1)(f) — Exemptions for certain activities in the public interest — Exemption for the supply of services by independent groups of persons for their members — Applicability to insurance

Article in the EU VAT Directive

Article 132, 132(1)(f) of the EU VAT Directive 2006/112/EC.

Article 132 (Exemptions for Certain Activities in the Public Interest)
1. Member States shall exempt the following transactions:

(f) the supply of services by independent groups of persons, who are carrying on an activity which is exempt from VAT or in relation to which they are not taxable persons, for the purpose of rendering their members the services directly necessary for the exercise of that activity, where those groups merely claim from their members exact reimbursement of their share of the joint expenses, provided that such exemption is not likely to cause distortion of competition;

Facts

Aviva is part of the Aviva Group which is active in the area of insurance and pension protection services in Europe. The main activities of that group are the creation of long-term savings plans, fund management and insurance.
As part of a process of integration, the Aviva Group plans to set up a series of shared-services centres in a number of Member States. It is intended that those centres will provide the services which are directly necessary for carrying on the activity of insurance by the entities in that group, in particular services in the area of human resources, financial and accounting services, information technology services, administrative services, customer services and services connected with the creation of new products.
Aviva intends to carry on that activity by creating a European Economic Interest Grouping (‘EEIG’) which will not profit from its activity, in accordance with Article 3 of Regulation No 2137/85. The members of the EEIG will be exclusively companies from the Aviva Group carrying on an economic activity in the area of insurance, including Aviva.
Against that background, Aviva submitted a request to the Minister of Finance in order to ascertain whether the activity of the EEIG could benefit from an exemption from value added tax (VAT) on the basis of Article 43(1)(21) of the Law on VAT. Aviva submitted that that should be the case and that, therefore, the members of the EEIG established in Poland, which are companies carrying on an economic activity in the area of insurance, had to be exempted from the obligation to charge and to declare VAT due on the costs passed on by the EEIG.
By decision of 14 March 2013, the Minister of Finance considered that Aviva’s position was incorrect. It found that the condition to which the exemption under Article 43(1)(21) of the Law on VAT is subject, that the conditions of competition must not be disturbed, had not been fulfilled. According to the Minister of Finance, the application of an exemption to an independent group of persons (‘IGP’) places it in a privileged position on the market as compared with other entities engaged in the same transactions. It therefore considered that, where entities which are not part of an IGP and which carry on a similar, taxed activity operate on the market in question, it is appropriate to refuse that exemption on the ground that it is liable to infringe the competition rules.
Aviva brought an action before the Wojewódzki Sąd Administracyjny w Warszawie (Regional Administrative Court, Warsaw, Poland), seeking, inter alia, annulment of that decision of the Minister of Finance. It claimed that that decision, according to which the services purchased by Aviva from the EEIG could not benefit from the exemption from VAT at issue, amounted to an infringement of Article 43(1)(21) of the Law on VAT.
By judgment of 30 December 2013, the Wojewódzki Sąd Administracyjny w Warszawie (Regional Administrative Court, Warsaw) annulled the decision of the Minister of Finance of 14 March 2013. It held that the proposed EEIG satisfied all of the conditions permitting the application of the exemption under Article 43(1)(21) of the Law on VAT. That court took the view that distortions of competition could be raised only if there existed, on the market for ancillary services, entities other than the IGP concerned which were ready to offer services similar to those provided by that IGP and if, moreover, the current purchasers of the services, who are members of that IGP, were interested in purchasing those services from an entity outside of that group. According to that court, it would be difficult to find on the market an economic entity which would provide, as a shared-services centre, services to entities established in 12 Member States, without making profits and by operating exclusively within the structure of the group at issue in the main proceedings.
The Minister of Finance brought an appeal on a point of law before the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland). That court considered that the exact interpretation which needed to be made of the provisions of Directive 2006/112, in particular of Article 132(1)(f), was not clear cut and that the case-law of the Court of Justice did not make it possible to remove any doubts in that respect.

Questions

Is a provision of national law concerning the exemption from VAT of independent groups of persons which does not lay down any criteria or procedures governing the fulfilment of the condition of distortion of competition compatible with Article 132(1)(f) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax ¹ in conjunction with Article 131 of the VAT Directive, and also with the principles of effectiveness, of legal certainty and of the protection of legitimate expectations?

What criteria should be applied in assessing whether the condition of distortion of competition laid down in Article 132(1)(f) of the VAT Directive is fulfilled?

Is the answer to the second question above affected by the fact that the independent group of persons provides the services to members who fall within the jurisdiction of different Member States?

AG Opinion

It must be assumed that, for these purposes, the national exemption is restricted to groups of taxable persons who perform transactions which are exempt under Article 132(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’). Groups of insurance undertakings do not therefore fall within the scope of Article 132(1)(f) of the VAT Directive.

(1) Article 132(1)(f) of the VAT Directive does not preclude a provision of national law which does not prescribe any criteria or procedures with respect to compliance with the condition that there must be no distortion of competition.

(2) It must be assumed as a rule that the services supplied by a group within the meaning of Article 132(1)(f) of the VAT Directive do not give rise to a distortion of competition. As a provision for the avoidance of abuse, that criterion must be interpreted restrictively.

(3) An independent group of persons may supply exempt services only to those of its members which are subject to the same legal system as itself.

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Decision

In the light of all of the foregoing, the answer to the request for a preliminary ruling is that Article 132(1)(f) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted to the effect that the exemption provided for in that provision relates only to independent groups of persons whose members carry on an activity in the public interest referred to in Article 132 of that directive and that, therefore, the services supplied by independent groups of persons whose members carry on an economic activity in the area of insurance, which does not constitute such an activity in the public interest, are not entitled to that exemption.

Summary

The Aviva group is active in insurance services and pension protection in Europe. As part of an integration process, the group is considering setting up a number of common services centers in different Member States. It is envisaged that those centers will provide services directly necessary for the pursuit of the insurance activity by the entities of this group, in particular personnel management services, financial and accounting services, IT services, administrative services, customer service and services related to the development of new products.

Aviva is considering carrying out that activity in a European Economic Interest Group (EEIG) which will not derive any profit from its activity. Members of the EEIG may only be companies of the Aviva group engaged in an economic activity in the field of insurance.

According to Aviva, the members of the EEIG established in Poland, which are companies engaged in an economic activity in the field of insurance, should be exempted from the obligation to invoice and declare the VAT due on the costs charged by the EEIG.

However, the ECJ considers that the exemption from Article 132 (1)(f) of the VAT Directive (umbrella exemption) only applies to independent groups of persons whose members carry out an activity in the public interest listed in Article 132 of this Directive, with the result that services provided by independent groups of persons whose members pursue an economic activity in the field of insurance which is not such an activity in the public interest do not qualify for this exemption.

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