This update was first published in the March 2012 International edition of Accounting and Business magazine.
The European Commission is threatening legal action against Luxembourg, a key European financial centre, unless it closes loopholes in its VAT system regarding independent groups such as professional associations.
The Commission argues that under EU law, VAT must be paid on all association services, except for those already universally exempt from sales tax. However, VAT law in the Grand Duchy allows all services provided by independent groups to be VAT-exempt, as long as the members themselves are largely untaxed on their work (usually up to 70% of turnover).
Group members can also deduct VAT charged to their group or association on purchases made in the name of the member, but for the benefit of all group members.