On 13 April 2018, a draft law was introduced to the Luxembourg Parliament by the Minister of Finance in order to implement VAT grouping provisions into the Luxembourg VAT law.
End of the IGP for the financial Industry
Based on several decisions of the Court of Justice of the European Union last year, the Luxembourg Government had limited the application of cost sharing groups (so called independent group of persons or “IGP”) to groups of members which are active in the public interest and (solely) benefit from the VAT exemption of article 132 of Council Directive 2006/112/EC. Such IGP regime had been used by many groups of the financial industry in order to reduce VAT costs for intra-group support services.
Alternative for the financial sector in Luxembourg
As the end of the IGP for the financial sector means an additional VAT cost for services provided between group entities, the Luxembourg government decided to implement the so called VAT grouping as an alternative. The option for VAT grouping is based on article 11 of Council Directive 2006/112/EC and already implemented in various EU Member States (e.g. Germany, UK, The Netherlands, etc.)
How does VAT grouping works?
Although a VAT group is composed of two or more independent entities, such entities are considered to be one single VAT taxable person acting under one singe VAT number. Accordingly, transactions between the members are considered as outside the scope of VAT.
New draft VAT grouping rules in Luxembourg
In order to form a VAT group, the entities will have to fulfil certain conditions. For example:
- The members of such group must be established in Luxembourg
- They shall be closely linked from financial, economic and organizational point of view
- The VAT group needs to appoint a representative which will act as a main contact towards the Luxembourg VAT authorities and will be responsible for the VAT filing
- The VAT group, represented by its appointed representative, needs to apply formally to the VAT for the application of the VAT grouping rules
For entities of the financial sector that often have only a partial or even no input VAT recovery right, this regime is certainly advantageous, if services are provided to other group entities. However, for cross border services the standard rules will still apply and the specific VAT number allocated to the VAT group may not be used.
We will monitor the legislative procedure and keep you informed about any changes which might result from this process.