Luxembourg: Three VAT Jingles Not To Miss Before Year-End

Have you heard this year's year-end VAT jingles yet? 'Tis the season of snow, glühwein, and tax rulings!

In September we received the long-awaited decisions from the Court of Justice of the European Union (CJEU) on the VAT exemption related to independent groups of persons (IGPs).¹ This confirmed the fears of many following the Commission against Luxembourg case:² IGPs are out. This'll be VAT jingle number one.

VAT jingle number two: the 2018 budget law packs a small VAT surprise for the insurance sector.

And, number three: the MiFID II Directive will finally go live in 2018. This means big change!

Let's take a closer look at these three.

1. A freezing storm descends on the VAT exemption for independent groups of persons...

The CJEU has clearly stated its position on the VAT exemption provided under article 132, 1, f) of the VAT Directive (Directive 2006/112/CE). Article 132, 1, f) covers the VAT treatment of services rendered by IGPs to their members, stipulating that such services would be VAT-exempt if they met the conditions in the VAT Directive. However, the CJEU has now said that the exemption is only applicable if the members' activities are related to public interest. As a consequence, IGPs in the financial and insurance sectors should no longer exist!

This decision, which ended almost six years of legal suspense, has far-reaching consequences for EU countries using this provision for their financial/insurance sectors. The Luxembourg government has already repealed the Grand-Ducal Decree of 2004 that applied the exemption. In November 2017, Finance Minister Gramegna stated that Luxembourg was seriously considering VAT grouping as an alternative. However, such an (optional) provision of the VAT Directive is limited to the national territory of one Member State, whereas IGPs could be cross-border.

When doing your year-end paperwork and your 2018 planning, take these changes into consideration!

2. Christmas comes early for insurers...

As from 1 January 2018, the wording of article 44, 1, d) of the Luxembourg VAT Law will be amended to include a new category of beneficiaries: life-insurance collective internal funds. Article 44, 1 d) currently lists investment vehicles whose managements are VAT-exempt. It includes, among others, UCITS funds, investment companies like SICAVs and/or SICARs that are subject to State supervision, and alternative investment funds.

Under the new wording, the management of life-insurance collective internal funds will benefit from a VAT exemption as well, under two conditions: that the subscribers bear the financial risk and that the funds are subject to the supervision of the CAA.

3. On Dasher, on Dancer, on Prancer, on MiFID II...

This time, without (further) delay, MiFID II is on its way! Coming into effect on 3 January 2018, MiFID II aims not only to make financial markets in the EU more robust and transparent, but also to create a new legal framework for better regulation of trading activities in EU markets and better investor protection.

The Directive hopes to hit these goals with (1) a ban on inducements and (2) a split between research and brokerage costs. The former will have VAT consequences as it will affect how the financial sector functions. The latter will also imply VAT changes since research services will have to be provided and invoiced separately from other execution services.

Check the KPMG Blog regularly for updates on VAT, insurance, and MiFID II!

Footnotes

1 DNB Banka, Aviva, and Commission against Germany—see our VAT alert of 21 September 2017.

2 See our VAT alert of 4 May 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.