Cost sharing: all shook up?

The advocate general’s opinion in DNB Banka and Aviva would, if upheld by the CJEU, result in a dramatic narrowing of the scope of the VAT exemption for cost sharing groups. The AG opined, inter alia, that: the VAT cost sharing group exemption has direct effect; the exemption is territorial in nature and is not intended to be applied on a cross-border basis; and any amounts charged by a cost sharing group over and above the exact reimbursements of costs will prevent the VAT exemption from applying, even where an uplift is required for direct tax purposes. The opinion not only has serious implications for existing cost sharing groups, it also raises much broader and vital questions as to the proper extent of the principle of territoriality, and the relationship between EU VAT law and the domestic legal system of the member states, as well as between the VAT Directive and other tax regimes.