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Why is a cost sharing exemption needed? The cost sharing exemption (CSE) has appeared in Directive 2006/112/EC (the VAT Directive) since 1977. Yet the UK did not introduce it into domestic VAT legislation until 17 July 2012. In the interim, doubts persisted within the UK regarding both the scope and the purpose of the pertinent provision in the VAT Directive. This lack of clarity created an uneven playing field across the EU, as Member States applied the exemption in divergent ways. As a consequence, comparability between Member States was weakened. It also triggered EU litigation, the outcomes of which assist practitioners when construing the exemption and its limits. Historically, HMRC maintained that the UK’s VAT grouping provisions were sufficient to accommodate the CSE as envisaged by the VAT Directive. However, the European Commission initiated proceedings against various Member States for incorrectly enacting the exemption, which appears to have prompted HMRC and HM Treasury to rethink their stance and proceed to implement a specific CSE within UK VAT legislation. That...