taxud/2414/08 - European Commission - Europa

- Such a system allows the introduction of a solution which is specific to the
problems of insurance and financial services operators. Following the public
consultation and the independent study these operators are working in a
growingly complex regulatory environment. Within that environment their
investments involve amounts and risks which are much higher than they are in
other sectors (e.g.: Single European Payment Area (SEPA) investments, Capital
tracking book-keeping requirements for allocated own capital, Risk Assessment
Tools, Intermediation, etc.). The two dominant cost factors for this industry in the
described environment are personnel costs and information technology (IT) costs.
Cross-border cost-sharing is a means to reduce these risks and optimise their
investments. This solution therefore appears particularly suitable to smaller and
medium enterprises and also for intermediation. An independent cost-sharing
group is also easier to supervise; in fact it can be managed by the Member States
where the group is established, with this Member State informing those other
Member States where the members of the group are established.
- This situation is different for fully taxable operators – the full input tax deduction
available makes that they do not need this instrument; It is also different for other
institutions the activities of which are VAT-exempt or out of scope as these are
typically not active cross-border, e.g. public bodies, health professions etc. It is
therefore justified to propose the measure for financial and insurance services
only.
- Moreover cost-sharing prevents a situation where VAT advantages obtained in
one Member State are made transferable between Member States.
- As exempted supplies are routed "one-way" within the group (i.e. from the group
to its members but not the other way round and not between group members), this
solution generates less tax risks and less administrative expenses for monitoring
the economic operators concerned. In fact, the risk of possible "rate shopping" is
negligible in comparison to the risk of unjustified input VAT deduction using
VAT grouping (Art. 11 of the VAT Directive) with a fully taxable person being
part of that grouping and used as the acquisition portal with a right to deduct. The
reception of non-taxable services within the cost-sharing group reduce the right to
deduct at the level of the group member where this member supplies taxable and
non-taxable services; this is much easier to monitor than the establishing of the
right to deduct in a VAT grouping!
- VAT grouping favours big operators and transactions between related persons
and is unfavourable to the cost structure and the independence of smaller
operators.
Under the new Article 137b Member States shall exempt services supplied by a group of
taxable persons to members of the group where the following conditions are (all)
fulfilled:
(1) the group itself and all its members are established or resident in the
Community;
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