Germany challenged by EU to extend VAT exemption

Sun 1st Mar 2015

The European Commission has challenged Germany to extend the VAT exemption on group shared services to all industries.

Group VAT exemptions allow related companies to forego charging VAT on intra-group transactions to help reduce cash-flow and administrative burdens. At present, the EU VAT Directive permits such schemes in member countries irrespective of the industry. Such regimes allow related companies to also collectively buy-in services at better pricing and with VAT cash flow advantages.

However, Germany only permits such exemptions in the health and medical industries.  Germany has a limited outsourcing business culture, and sees other EU member states gaining a competitive advantage through this VAT exemption – German VAT is levied on these services.

The Commission issued Germany with a written warning to change this restriction in 2011. However, since German has still not complied, the EC is pushing the matter to the European Court of Justice, the highest court of appeal for EU legal issues.

This legal process is likely to take over one year.