Luxembourg | Death Knell for Cost-sharing Forces Government to Action

Introduction of VAT Grouping to Mitigate Removal of Cost-sharing Exemption...

Changes to Luxembourg VAT law, providing for the introduction of the VAT group scheme, as of 31st July 2018, were finally published in the Official Gazette (of 10th August 2018).

This legislation has been implemented in response to the CJEU’s rulings last year denying application of the highly popular cost-sharing exemption to the banking and insurance sectors. It hopes to mitigate the effects of the decisions to these areas of industry that previously relied on the structure in Luxembourg to reduce costs.

The EU-wide VAT grouping regime can bring significant benefits to qualifying VAT group members since supplies of goods and services between the members are deemed to be outside the scope of VAT. This is because the members of a VAT group are considered as “a single taxable person” for VAT purposes and so provided with a single VAT registration number.

Companies based in Luxembourg that previously benefited from the cost-sharing exemption, should assess whether it is in their interest to apply the VAT grouping mechanism, possibility enabling them to reduce their amount of irrecoverable input VAT.