Commentary

V4.187 Exemption—supplies of services by groups involving cost sharing (cost sharing exemption)

Part V4 Exemption, zero-rating and reduced rates

V4.187 Exemption—supplies of services by groups involving cost sharing (cost sharing exemption)

Cost sharing groups

V4.187 Exemption—supplies of services by groups involving cost sharing (cost sharing exemption)

This paragraph examines the exemption for services supplied by groups involving cost sharing (commonly referred to as the cost sharing exemption (CSE)).

Cost sharing exemption—EU legislation

Directive 2006/112/EC, art 132(1)(f)1 provides for the exemption of 'services supplied by independent groups of persons whose activities are exempt from or are not subject to value added tax, for the purpose of rendering their members the services directly necessary for the exercise of their activity, where these groups merely claim from their members exact reimbursement of their share of the joint expenses, provided that such exemption is not likely to produce distortion of competition'.

An attempt to argue that this provision applied in respect of contributions to a fund, made by members of a holiday complex to cover maintenance and management of the site, was dismissed in The Regency Villas Owners Club2 on the grounds that (a) the members were not making exempt supplies or engaging in other activities which were not subject to VAT; (b) as a result of (a), services received by members could not be regarded as 'directly necessary'; and (c) the granting of exemption in such circumstances would result in a distortion of competition.

In Taksatorringen3, the ECJ held that exemption must be denied if there is a genuine risk that it might give rise to distortions of competition in the future. However, national legislation which allows a temporary exemption to be granted where doubt

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