The cost sharing exemption from VAT
The cost sharing exemption from VAT

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • The cost sharing exemption from VAT
  • Why is a cost sharing exemption needed?
  • What is the aim of cost sharing exemption?
  • The cost sharing exemption
  • A cost sharing group formed by an independent group of persons
  • Members of a cost sharing group
  • Which supplies qualify for the cost sharing exemption?
  • Practical application

Why is a cost sharing exemption needed?

The cost sharing exemption (CSE) has been included in Directive 2006/112/EC (the VAT Directive) since 1977. However, it was only introduced into the UK VAT legislation with effect from 17 July 2012. The delay in implementing this exemption resulted from the UK's uncertainty over the scope and purpose of the relevant provision of the VAT Directive. The lack of clarity relating to this provision has resulted in an uneven playing field across the EU as Member States have implemented this exemption in different ways. It has also resulted in EU litigation, the outcome of which assists practitioners in interpreting the exemption.

Historically, HMRC argued that the VAT grouping provisions in the UK VAT legislation were sufficient to cover the CSE as provided in the VAT Directive. However, the European Commission commenced proceedings against various Member States for incorrect enactment of this exemption, which appears to have spurred HMRC and HM Treasury to reconsider the position and move forward to implement a specific CSE in the UK VAT legislation.

The Court of Justice released its judgments in the cases of DNB Banka, Aviva and Germany on 21 September 2017. The Court of Justice held that the CSE only applies to activities in the public interest and not to insurance activities or financial services. The benefits