OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 1 March 2017 ( 1 )

Case C‑605/15

Minister Finansów

v

Aviva Towarzystwo Ubezpieczeń na Życie S.A. w Warszawie

(Request for a preliminary ruling

from the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland))

(Request for a preliminary ruling — Tax legislation — VAT legislation — Exemption of an independent group of persons pursuant to Article 132(1)(f) of the VAT Directive — Application to insurance services — Application to cross-border groups — Assessment of the absence of a distortion of competition — Obligation on the Member States to expand upon a directly-effective provision of a directive)

I. Introduction

1. In the present request for a preliminary ruling, the Court looks once again at Article 132(1)(f) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax ( 2 ) (‘the VAT Directive’). This is one of the VAT exemptions which have not as yet been clarified. The Court has examined that provision and the conditions governing its applicability on only three occasions in the last few decades. ( 3 ) At present, however, the Court has pending before it no less than four cases ( 4 ) concerning different aspects of that exemption.

2. The similar case of DNB Banka ( 5 ) is primarily concerned with determining what a group of persons within the meaning of Article 132(1)(f) of the VAT Directive actually is. The present case, on the other hand, is significant from the point of view of the material scope (extension to insurance, too) and the geographical scope (‘cross-border’ groups) of Article 132(1)(f) of the VAT Directive, and the stipulation that there must be no distortion of competition. An answer must also be given to the question of whether, in the present case, the Member State has an obligation to transpose more than the wording of the exemption into its national law.

II. Legal framework

A. EU law

3. In the European Union, value added tax is levied in accordance with the VAT Directive. Article 11(1) of the VAT Directive confers the following right on the Member States: ‘After consulting the advisory committee on value added tax (hereafter, the “VAT Committee”), each Member State may regard as a single taxable person any persons established in the territory of that Member State who, while legally independent, are closely bound to one another by financial, economic and organisational links.’

4. Article 132(1)(f) of the VAT Directive requires Member States to exempt the following transactions: ‘the supply of services by independent groups of persons, who are carrying on an activity which is exempt from VAT or in relation to which they are not taxable persons, for the purpose of rendering their members the services directly necessary for the exercise of that activity, where those groups merely claim from their members exact reimbursement of their share of the joint expenses, provided that such exemption is not likely to cause distortion of competition.’

5. As a general provision, Article 131 of the VAT Directive also applies to the above exemption: ‘The exemptions provided for in Chapters 2 to 9 shall apply without prejudice to other Community provisions and in accordance with conditions which the Member States shall lay down for the purposes of ensuring the correct and straightforward application of those exemptions and of preventing any possible evasion, avoidance or abuse.’

B. National law

6. Article 43(1)(21) of the Law of 11 March 2004 on the tax on goods and services (codified version, Dz. U. 2011 No 177, heading 1054, as amended; ‘the Law on VAT’) provides: ‘The following shall be exempt from tax: the supply of services by independent groups of persons to their members, who are carrying on an activity which is exempt from tax or in relation to which they are not regarded as taxable persons, for the purpose of rendering their members the services directly necessary for the exercise of that activity which is exempt from tax or not subject to tax, where those groups merely claim from their members the reimbursement of costs equal to each member’s individual share of the general expenses incurred in the common interest by such groups, provided that the exemption does not lead to disturbance of the conditions of competition.’

III. Dispute in the main proceedings

7. The Aviva Group (‘the Group’) provides insurance services, including pension protection, in Europe. One of the Group’s main areas of activity consists of long-term savings plans, fund management and insurance. The Group is considering setting up a series of shared-service centres in selected Member States of the European Union and pursuing that activity in the form of a European Economic Interest Grouping ( 6 ) (‘EEIG’). Membership of that EEIG is to be comprised exclusively of companies within the Group that engage in economic activities in the insurance sector, including, inter alia, Aviva Towarzystwo Ubezpieczeń na Życie S.A., Warsaw (Aviva Life Assurance Company Ltd, ‘Aviva’).

8. The shared-service centres will supply services that are directly necessary for the exercise of insurance activities by members of the Group (of the EEIG). In particular, these may be HR services, financial and accounting services, IT services, administrative services, customer service facilities or new product development services.

9. EEIG members will carry out activities that are exempt from or not subject to tax. It may be, however, that some of them (including Aviva) will also carry out additional or ancillary activities which are taxable (for example, the occasional letting of floor space or provision of other auxiliary services). The EEIG will supply its services exclusively to companies within the Group that are established in the European Union. The aforementioned activities that would be performed by the EEIG are currently carried out by individual Group affiliates established in 12 States.

10. In the view of the referring court, the fact that the Group affiliates, including those established in Poland, use the EEIG’s services does not in principle alter the volume of purchases from external service providers active in the sector in which the Group operates. The EEIG is prohibited from making a profit from its activities because this would be contrary to Article 3 of the EEIG Regulation, according to which the EEIG does not have the object of making a profit for itself.

11. Against the background of those facts, Aviva applied to the Minister for Finance (‘the tax authority’) for a written interpretation on the question of whether the aforementioned activity of the EEIG (established somewhere in the European Union but not in Poland) would be exempt from VAT under Article 43(1)(21) of the Law on VAT. In particular, Aviva wished to ascertain whether the EEIG members established in Poland which engage as companies in economic activities in the field of insurance are for that reason not under an obligation under the reverse charge mechanism to account for and declare the VAT payable on the costs passed on to them by the EEIG. Aviva takes the view that that question must be answered in the affirmative.

12. In its decision of 14 March 2013, containing an individual interpretation, the tax authority stated that that view was incorrect. It held that the last criterion for exemption laid down in Article 43(1)(21) of the Law on VAT, to the effect that the conditions of competition must not be adversely affected, is not fulfilled.

13. The tax authority relied on the case-law of the Court of Justice, in particular the judgment in Taksatorringen. ( 7 ) It held that, in the situation at issue, there was a real risk that competition might be distorted. If the EEIG applied an exemption, it would secure for itself a privileged position on the market.

14. In the action before the Wojewódzki Sąd Administracyjny w Warszawie (Regional Administrative Court, Warsaw, Poland) (‘the court of first instance’), Aviva’s claim that the decision containing the tax authority’s interpretation should be annulled was successful. According to the judgment of the court of first instance of 30 December 2013, the EEIG satisfies all the conditions for the application of the aforementioned exemption provided for in Article 43(1)(21) of the Law on VAT. The tax authority brought an appeal in cassation against the judgment of the court of first instance.

IV. Procedure before the Court of Justice

15. On 17 November 2015, the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland) in Warsaw, before which the matter is now pending, referred the following questions to the Court of Justice for a preliminary ruling under Article 267 TFEU: ‘(1) Is a provision of national law concerning the exemption from VAT of independent groups of persons which does not lay down any criteria or procedures governing the fulfilment of the condition of distortion of competition compatible with Article 132(1)(f) of the VAT Directive in conjunction with Article 131 of the VAT Directive, and also with the principles of effectiveness, of legal certainty and of the protection of legitimate expectations? (2) What criteria should be applied in assessing whether the condition of distortion of competition laid down in Article 132(1)(f) of the VAT Directive is fulfilled? (3) Is the answer to the second question above affected by the fact that the independent group of persons provides the services to members who fall within the jurisdiction of different Member States?’

16. Aviva, the Republic of Poland, the Federal Republic of Germany, the Netherlands, the United Kingdom and the European Commission have submitted written observations on those questions and, with the exception of the United Kingdom and the Netherlands, attended the hearing on 7 December 2016.

V. Legal assessment

A. The second and third questions

17. The second and third questions are concerned with the criteria governing the applicability of Article 132(1)(f) of the VAT Directive and I shall therefore examine them, together, first. In this regard, the referring court wishes, in essence, to ascertain how to interpret the criterion to the effect that there must be no ‘distortion of competition’ and the criterion to the effect that services must be supplied by a ‘group of persons’ in cases where the latter supplies cross-border services to its members.

18. In order to resolve the foregoing questions, an answer must first be found to the question of whether a group of insurance companies such as Aviva falls within the material scope of the exemption provided for in Article 132(1)(f) of the VAT Directive (see in this regard Section 1 below). It is also necessary to clarify whether Article 132(1)(f) of the VAT Directive is an exemption which applies to the cross-border provision of services (see in this regard Section 2 below) and what interpretation is to be placed upon the (negative) criterion to the effect that there must be no ‘distortion of competition’ (see in this regard Section 3 below).

1. Material scope

(a) Wording and purpose

19. The wording of Article 132(1)(f) of the VAT Directive leaves unanswered the question of whether all or only some groups of persons fall within the material scope of that exemption. An answer to that question may nonetheless be discernible from the purpose of that exemption.

20. The purpose of Article 132(1)(f) of the VAT Directive seems to me — in keeping with the view expressed by Advocate General Mischo ( 8 ) and in the case-law of the Court itself ( 9 ) — to be as follows: to ensure that an undertaking which must buy in services because, for example, it is not large enough to provide them itself is not placed at a competitive disadvantage by comparison with an undertaking which is able to have the services supplied by its own employees or as part of a VAT group.

21. The competitive disadvantage that is to be offset by that exemption arises in the following way: an undertaking which offers tax-free services must sustain the VAT payable on the inputs. Without the exemption provided for in Article 132(1)(f) of the VAT Directive, this would be the case even in circumstances where that undertaking is compelled to cooperate with other undertakings in a common structure that assumes responsibility for the activities necessary to supply those (exempt) services. If that exemption is extended to the jointly supplied inputs, the exemption applicable to the output will cover the same added value as it would in the case of a competitor procuring the input from its own employees. Thus, the final consumer benefits from the exemption even where a group of undertakings operating under a tax exemption provides certain inputs that have directly contributed to the exempt output supplied to him. Contrary to the view expressed by the Commission at the hearing, Article 132(1)(f) of the VAT Directive is not therefore contrary to the principle of neutrality, but, on the contrary, offsets the competitive disadvantages that encumber taxable persons who share their resources.

22. The Court has consistently held that, while tax exemptions are to be interpreted strictly, the interpretation adopted must nonetheless be guided by the purpose and intended effect of the provision in question. ( 10 ) If the purpose of Article 132(1)(f) of the VAT Directive is to extend other exemptions, the question as to which groups are intended to be caught by that provision must be answered by reference to the purpose of the group members’ activity to which the exemption is to be extended.

23. Insurance services are exempt from VAT because such transactions are already subject to insurance tax, which is also payable by the consumer. ( 11 ) This eliminates the concurrent levying of two types of tax on the same transaction at the stage of providing the output. An exemption for inputs such as the service which the EEIG provides to Aviva in this case is not essential for the purposes of preventing the concurrent levying of multiple taxes on the output transaction.

24. The same is true of the exemption applicable to banking services, the primary purpose of which, as the Court sees it, is to alleviate the difficulties connected with determining the taxable amount and the amount of VAT deductible. ( 12 ) That purpose too is irrelevant to the exemption of inputs since the services which the EEIG supplies to Aviva in connection with its VAT-exempt activity do not qualify for input tax deduction. The issue of differentiation does not therefore arise here.

(b) Schematic interpretation

25. From a schematic point of view, it is safe to say that Article 132(1)(f) of the VAT Directive is not a general provision applicable to all exemptions in the same way as Article 131 of the VAT Directive. Article 132(1)(f) of the VAT Directive does not appear under the ‘General provisions’ heading to Chapter 1 of Title IX (‘Exemptions’).

26. The legislature chose instead to put Article 132(1)(f) of the VAT Directive in Chapter 2, under the heading ‘Exemptions for certain activities in the public interest’. The exemptions covered by Article 132(1) of the VAT Directive are intended to relieve consumers of those and other services of the burden of VAT on public-interest grounds, be it because the services are typically supplied to persons in need (for example, subparagraph (g) — social welfare), because the costs of vital medical treatment are not taxed (for example, subparagraphs (b) and (c)), or in order to make the education necessary to a society easier to afford (for example, subparagraphs (i) and (j)).

27. In the case of the aforementioned public-interest exemptions, it is understandable that the exemption should, in certain circumstances, also apply to inputs which a group of such undertakings supplies, by way of a cooperative division of labour, in order to meet the direct needs of those exempt transactions. This is particularly true given that the VAT group mechanism (Article 11 of the VAT Directive) will be employed less frequently in public-interest sectors.

28. Contrary to the view taken by the Commission, moreover, the foregoing is not precluded by the drafting history of Article 132(1)(f) of the VAT Directive. The objections raised by the Commission in this regard relate only to an exemption for a group of doctors which had been proposed by the Commission but which was abandoned in the course of the legislative process. The legislature extended that proposal to become the present version of Article 132(1)(f) of the VAT Directive. That extension did nothing, however, to change the schematic position of Article 132(1)(f) within the VAT Directive. Neither was that position changed when the Sixth Directive was recast as the VAT Directive in 2006.

29. The legislature clearly wished to include not only groups of doctors but also groups of educational establishments and so on. The drafting history does not, however, support the inference that groups of banks or insurance companies were also to be included. Even the Court of Justice itself considers the schematic position of the exemption provisions to be significant from the point of view of interpretation. ( 13 )

30. As the Federal Republic of Germany submits, up until a few years ago, the prevailing view within the Commission too appears to have been that the VAT exemption should be similarly extended by the legislature to the banking and insurance sectors, ( 14 ) although, as the Commission conceded at the hearing, that option was not taken up by the Council. In the light of the schematic position of Article 132(1)(f) of the VAT Directive, that decision by the legislature cannot be reversed by a broad interpretation of that exemption. ( 15 ) On the contrary, it must be left to the European legislature to decide whether to extend the exemption in Article 135 of the VAT Directive in that way.

31. What is more, that interpretation is not precluded by the judgment in Taksatorringen, ( 16 ) even though that judgment was delivered in relation to a group of insurance companies. The question put to the Court in that case, however, was concerned only with the interpretation of the criterion of ‘distortion of competition’ and the Court’s answer was itself clearly confined to that issue alone. ( 17 )

(c) No infringement of the principle of neutrality

32. The refusal to exempt groups of insurance companies from VAT is not precluded by the principle of neutrality in VAT law. On the one hand, the principle of neutrality means that the taxable person (the undertaking), acting in the service of the tax creditor in the form of a tax collector, is to be relieved of the final burden of VAT in circumstances other than private final consumption, provided that the undertaking’s activity is itself aimed at securing the performance of transactions which are (in principle) taxable. ( 18 ) This is not relevant here. On the other hand, it precludes economic operators carrying out the same transactions from being treated differently as far as the levying of VAT is concerned. ( 19 )

33. The different treatment of groups falling outside and within the scope of Article 132 of the VAT Directive is based on whether they pursue activities in the public interest. As a differentiation criterion, this does not warrant any objection from the point of view of the principle of neutrality.

34. The proposition that a VAT exemption without the right to deduct input tax should be interpreted restrictively is also supported by the fact that, on closer examination, such an exemption is capable of distorting competition. In some cases, after all, it creates an incentive for an undertaking to minimise its own input VAT burden by ‘insourcing’, that is to say absorbing activities into its own organisation, since the scale of the VAT exemption enjoyed by the final consumer depends on the input VAT paid by the supplier to that consumer. To some extent, this is at odds with the principle that operators must be able to choose the form of organisation which best suits them, without running the risk of having their operations excluded from an exemption. ( 20 )

35. In conclusion, it follows from the schematic position and the purpose of Article 132(1)(f) of the VAT Directive that that provision must be interpreted strictly and is not applicable to a group of insurance undertakings such as that at issue here.

2. The cross-border effect of the VAT exemption applicable to groups of persons

(a) General

36. In the event that the Court takes a different view, it must be decided whether the exemption provided for in Article 132(1)(f) of the VAT Directive also covers services supplied by a cross-border group to its members established in other Member States (or third countries). That question also arises in cases where the group itself is established in a third country.

37. At first sight, the wording of Article 132(1)(f) of the VAT Directive contains no restriction requiring the members of the group and the group itself to be established in the territory of a single Member State.

38. On the other hand, the legislature has expressly restricted the scope of other provisions of the VAT Directive to the territory of a single Member State. Thus, under the first paragraph of Article 11 of the VAT Directive, a Member State may regard as taxable persons only ‘persons established in the territory of that Member State’. A similar territorial restriction is also provided for in Article 283(1)(c) of the VAT Directive, according to which the special regime applicable to small enterprises is not to apply to a taxable person ‘who is not established in the Member State in which the VAT is due’.

39. By converse inference, it might follow from the foregoing that Article 132(1)(f) of the VAT Directive should be applicable to cross-border situations. On the other hand, there are also provisions which expressly assume that the taxable person engages in cross-border activities (see Article 148(e) of the VAT Directive: ‘airlines operating for reward chiefly on international routes’). To that extent, the argument based on the wording of the provision is not necessarily compelling.

40. On closer examination, however, the aforementioned argument is at odds with the provision’s drafting history (see in this regard section (b)), the scheme of exemptions (see in this regard section (c)), the evaluation of Article 11(1) of the VAT Directive (see in this regard section (d)) and the competition clause contained in Article 132(1)(f) of the VAT Directive (see in this regard section (e)). Finally, not even the fundamental freedoms require the exemption under Article 132(1)(f) of the VAT Directive to be extended to a cross-border group (see in this regard section (f)). Such extension would, moreover, enable undertakings to exploit the different tax rates and tax regimes in place (see in this regard section (g)).

(b) History of the exemption scheme

41. At first sight, there is nothing to indicate that Article 132(1)(f) of the VAT Directive is restricted to groups not engaged in cross-border operations. A look at the previous legislation as contained in the Sixth Directive, ( 21 ) however, explains why, unlike in the case of Article 11 of the VAT Directive, no such restriction is to be found in the wording of the former provision.

42. In the legislation previous to the VAT Directive, the exemption contained in Article 132(1)(f) of the VAT Directive was governed by Article 13 of the Sixth Directive. As is apparent from its heading, the latter provision applies only to ‘exemptions within the territory of the country’. According to the third recital of the VAT Directive, the latter was adopted simply in order to recast the structure and the wording [of the previous directive], but not with a view to bringing about material changes in the [earlier] legislation. The substantive amendments which were nonetheless made are listed exhaustively in the provisions governing the Directive’s transposition and entry into force. These make no mention of Article 132(1)(f) of the VAT Directive.

43. The Sixth Directive therefore supports the assumption that an exemption in national territory applies only to supplies made by groups or group members which are themselves established in national territory.

(c) Scheme of exemptions in the VAT Directive

44. That restrictive interpretation is also supported by the scheme of exemptions provided for in Title IX of the VAT Directive. In this regard, only Chapters 4 to 8 and 10 contain the special exemptions applicable to cross-border transactions. In particular, cross-border (transport) services are explicitly dealt with in Chapter 7.

45. That scheme too indicates that the extension of the exemptions by Article 132(1)(f) of the VAT Directive is not applicable to a cross-border group. This is particularly true if the extension provided for in Article 132(1)(f) is not to be confined to the exemptions under Article 132(1) of the VAT Directive (see point 19 et seq. above).

(d) Inconsistency with Article 11 of the VAT Directive

46. What is more, a broad interpretation of Article 132(1)(f) of the VAT Directive would give rise to an inconsistency with Article 11 of the VAT Directive. This allows Member States to regard as a single taxable person ‘persons established in the territory of that Member State’ who are ‘closely bound to one another’ in some way by a group.

47. If two undertakings form a group in such a way as to give one of them a majority share in the group, then Article 11 of the VAT Directive would not apply to any cross-border services supplied by that group to its members. The exemption provided for in Article 132(1)(f) of the VAT Directive, on the other hand, would be applicable to such cross-border services. The VAT exemption created under the provision laying down less stringent requirements with respect to the nature of the group would operate across borders, the one created under the provision imposing stricter conditions would not.

48. That inconsistency can be resolved only if the effects of Article 132(1)(f) of the VAT Directive are also confined to one Member State, which presupposes that the group and the group member to which a service is supplied are located in the same Member State.

49. Both provisions are underpinned by the same rationale. Restricting the provision’s application to the territory in which the group is established ensures that one Member State does not encroach upon the tax jurisdiction of the other Member State by allowing the formation of a VAT group or equivalent independent group, the conditions governing which are not open to ready scrutiny by that other Member State. At the same time, such a restriction ensures that the different tax authorities do not adopt contradictory decisions.

(e) Evaluation of the absence of a distortion of competition

50. The fact that the exemption provided for in Article 132(1)(f) of the VAT Directive, as the wording of that provision makes clear, must not give rise to a distortion of competition, also indicates that the exemption should be confined to a single Member State.

51. In that regard, the Court has already been called upon, in the judgment in Isle of Wight Council and Others, to answer the express question, in connection with Article 13(1) of the VAT Directive, as to whether the term ‘distortions of competition’ is to be determined by reference to a local market in particular or by reference to the entire national territory of a Member State. Its answer to that question was that the distortions of competition were not to be evaluated by reference to any local market in particular. ( 22 )

52. It justifies that answer on the ground ( 23 ) that the monitoring of a multitude of local markets assumes a systematic re-evaluation, on the basis of often complex economic analyses, of the conditions of competition on those markets, the determination of which may prove particularly difficult since the markets’ demarcation does not necessarily coincide with the areas over which the local authorities exercise their powers. That situation is therefore likely to jeopardise the principles of fiscal neutrality and legal certainty.

53. Now, the tax authorities are even less able to carry out a cross-border evaluation of the existence of distortions of competition obtaining in different Member States (or even internationally) than they are to assess several local markets in their own country. To this extent, the Court’s approach to Article 13 of the VAT Directive may also be applied to Article 132(1)(f) of the VAT Directive.

54. If, however, distortions of competition — whether under Article 13 or under Article 132(1)(f) of the VAT Directive — are to be evaluated by the tax authorities by reference only to the Member State in which they are situated, then the examination of a group of undertakings with a view to determining whether the tax-exempt supply of services to those undertakings leads to a distortion of competition may also, in principle, be carried out in relation only to those of its members which are established in the same State.

55. The same problems arise — as the Federal Republic of Germany also pointed out at the hearing — in connection with all the other criteria for the applicability of the provision concerned. The question as to whether the services supplied were directly necessary for the tax-exempt activity, for example, would have to be decided both by the Member State in which the group member is established and by the Member State in which the group is located. The risk of contradictory decisions in such circumstances is undeniable.

56. Moreover, since, when the exemption provided for in Article 132(1)(f) of the VAT Directive was created, the present system of mutual assistance between tax authorities within the European Union was not common, it cannot be assumed that, in the light of the mutual assistance now available within the European Union, the legislature may have had in mind a group engaged in cross-border activities in this way. Whether it did or not, the EU mutual assistance system certainly does not solve the problem in situations involving third States (see point 62 et seq. below).

(f) Taking account of the fundamental freedoms in the interpretation of Article 132(1)(f) of the VAT Directive

57. The strict interpretation set out above also does not come into conflict with the fundamental freedoms. Since an EU act such as the VAT Directive must so far as possible be interpreted in conformity with primary law, ( 24 ) those freedoms must also be taken into account when interpreting that provision. A restriction of the fundamental freedoms can be justified only by overriding reasons in the public interest. It must also be appropriate to ensuring the attainment of the objective in question and not go beyond what is necessary to attain that objective. ( 25 )

58. Like the territorial restriction of the effects of a VAT group within the meaning of Article 11 of the VAT Directive, the restriction on the freedom to provide services that may be present here is justified by the need to preserve the allocation of the power to impose taxes between Member States. ( 26 ) Any restriction on the freedom to provide services that may be present is also justified by the need to guarantee the effectiveness of fiscal supervision. ( 27 )

59. To the extent that, within the scope of Article 11 of the VAT Directive, the place of supply may be in another Member State which does not necessarily operate a VAT group mechanism, the effect of the VAT group [mechanism] cannot be extended beyond the territorial borders of the Member State [in which it is employed] and VAT revenue in the other Member State must not be adversely affected.

60. The same principle applies within the scope of Article 132(1)(f) of the VAT Directive. To the extent that the tax authority in the Member State concerned is able to evaluate the existence of a distortion of competition and the other conditions governing the applicability of that provision in relation only to the Member State where it is situated, that authority is dependent on the evaluation of those conditions of applicability by another Member State. In those circumstances, however, the effect of the exemption under Article 132(1)(f) of the VAT Directive cannot be extended to a cross-border group if there is to be no risk of the VAT revenue in one Member State being affected by another Member State.

61. It is also important to take into account the fact, made explicit in Article 131 of the VAT Directive, that the Member States must ensure the correct and straightforward application of the exemptions so provided for. This would be effectively impossible, however, if a single tax authority had to evaluate the presence of any distortions of competition across the globe or throughout the EU, or if several tax authorities carried out different — and possibly contradictory — evaluations. Indeed, the latter scenario would actually create distortions of competition. ( 28 ) The considerable practical difficulties of applying and monitoring the scheme in such circumstances also militate against a broad interpretation ( 29 ) of the exemption provided for in Article 132(1)(f) of the VAT Directive.

(g) Third States and the rate of tax issue

62. Apart from that, a broad interpretation of the term ‘group of persons’ makes for a tax optimisation model that is very easy to set up, particularly for groups of companies that operate globally. The latter simply have to form with those of their affiliates that operate in Europe a group, established in a third State where there is no VAT (such as the United States, for example), to purchase all the services, subject to VAT, that they had previously purchased from Europe from third parties, an arrangement which cannot be described as artificial.

63. Since, in those circumstances, the place of supply would usually be in the United States, where there is no VAT, such a transaction would not be taxable and would not be subject to VAT. The group would then sell on the purchased services to its members at cost. It is true that the place of supply would then be in the Member States concerned. However, the transaction would be exempt from VAT there, pursuant to Article 132(1)(f) of the VAT Directive. Leaving aside the question as to how, in such circumstances, the Member States concerned would be able to verify the absence of a distortion of competition or compliance with the other criteria for the applicability of that provision (see point 50 et seq. above), this could easily reduce VAT revenue throughout the European Union. A VAT group as provided for in Article 11 of the VAT Directive, on the other hand (see point 46 et seq. above), could not have achieved such an outcome.

64. Even if the effect of Article 132(1)(f) of the VAT Directive were, from a teleological point of view, confined to groups within the territory of the European Union, all groups could be established in the country with the lowest rate of VAT in order best to minimise the burden of input VAT. A similar problem in connection with mail-order businesses prompted the legislature to include in Article 34 of the VAT Directive a threshold to prevent all mail-order businesses from establishing themselves in the country with the lowest rate of VAT. ( 30 ) It can hardly be assumed that, in the case of services supplied by and to independent groups of persons, on the other hand, the legislature intended to tolerate such an outcome.

(h) Conclusion

65. It must be concluded that, even in the light of the fundamental freedoms, Article 132(1)(f) of the VAT Directive is to be interpreted strictly, as meaning that only the services which a group supplies to those of its members that are situated in the (same) territory of a Member State are covered by the exemption.

3. Interpretation of the absence of a distortion of competition

66. In the event, however, that the Court takes the view that cross-border groups are also covered by Article 132(1)(f) of the VAT Directive, we have yet to clarify the criteria for determining when there is no distortion of competition within the meaning of Article 132(1)(f) of the VAT Directive.

67. As the Court has held, ( 31 ) Article 132(1)(f) of the VAT Directive is intended to offset the competitive disadvantage [suffered by an independent group of persons] by comparison with an undertaking which procures such services (as are supplied by the group) from its own employees or through a VAT group. If, however, that exemption is intended to offset a competitive disadvantage, the grant of it cannot at the same time give rise to a distortion of competition. In those circumstances, the competition clause contained in Article 132(1)(f) of the VAT Directive makes little sense ( 32 ) and must therefore be interpreted very restrictively.

68. A starting point for such a restrictive interpretation is offered by the Court’s case-law to the effect that a finding of a distortion of competition requires ( 33 ) there to be a genuine risk that the exemption may by itself, immediately or in the future, give rise to distortions of competition. To this end, it must be examined whether the group can be certain of keeping its members’ custom even if there is no exemption. ( 34 )

69. Members of a group usually only ever come together if they are certain that those members will also purchase the group’s services. That is probably the real reason for such cooperation. If that interpretation is taken to its logical conclusion, it must in principle be assumed that the formation of a group will not give rise to a distortion of competition within the meaning of Article 132(1)(f) of the VAT Directive.

70. In that context, the criterion requiring that there should be no distortion of competition serves to avoid abuse (see Article 131 of the VAT Directive). In particular, the exemption must not be applied inappropriately. Although it is ultimately for the national court to make that assessment, it is nonetheless necessary, in the interests of a uniform application, to provide that court with the criteria for doing so.

71. An indication that the exemption provided for in Article 132(1)(f) of the VAT Directive is being applied inappropriately may be that the group supplies the same services for consideration to non-members and is to that extent, by exploiting effects of synergy, operating on the market. This may constitute a correspondingly genuine risk of distortion of competition. Another indication may be that the primary purpose of the group’s formation is simply to optimise the input VAT burden (that is to say, to create a competitive advantage by switching any necessary peripheral services to a group) rather than to establish reciprocal cooperation with a view to avoiding a competitive disadvantage. Yet another indication may be that the group does not supply any services tailored to the specific needs of its members, with the result that its services could just as easily be offered by others too.

4. Conclusion

72. The answer to the second and third questions must therefore be that the national exemption at issue is restricted to groups of taxable persons who perform transactions which are exempt under Article 132(1)(f) of the VAT Directive. In this regard, it can be assumed that services supplied by a group within the meaning of Article 132(1)(f) of the VAT Directive do not in principle give rise to a distortion of competition. An independent group of persons may, however, supply exempt services only to members which are subject to the same legal system as itself.

B. The first question

73. The Republic of Poland has adopted the wording of Article 132(1)(f) of the VAT Directive almost verbatim. By its first question, the referring court wishes to ascertain whether the national legislature must prescribe further criteria or procedures for the purposes of assessing the absence or presence of a distortion of competition. The issue is whether there is any obligation to expand upon the wording of a provision of a directive. The referring court justifies its question by reference to a possible breach in the present case of the principles of effectiveness, legal certainty and the protection of legitimate expectations.

1. Direct applicability of Article 132(1)(f) of the VAT Directive

74. An obligation to make more expansive provision presupposes that the Member State has some discretion in transposing the directive. While the Federal Republic of Germany considers that such an obligation does exist, on the ground that Article 132(1)(f) of the VAT Directive is neither precise nor unconditional, the United Kingdom submits that transposition is not open to discretion here because Article 132(1)(f) of the VAT Directive is directly applicable.

75. As I have already explained in my Opinion in DNB Banka, ( 35 ) the (negative) criterion of ‘distortion of competition’ is ‘simply’ an indefinite legal concept which does not confer any abstract regulatory discretion on the national legislature. That provision is also sufficiently precise to satisfy the principle of legal certainty, since ‘it sets out an obligation in unequivocal terms’. ( 36 )

76. Article 132(1)(f) of the VAT Directive therefore satisfies the requirement of clarity and is, as I also demonstrated at length in my Opinion in DNB Banka, ( 37 ) sufficiently precise and unconditional to have direct effect. ( 38 )

2. Any need for further transposing acts?

77. In so far as it incorporated the directly effective Article 132(1)(f) of the VAT Directive into national law in almost identical terms, the Republic of Poland appears at first sight to have discharged its transposition obligation. However, the national legislation, like the VAT Directive itself, simply lays down the condition that the exemption must not adversely affect the conditions of competition. This prompts the referring court to question whether, in discharging its obligation to transpose the Directive, the Member State should have prescribed other, more specific criteria in its legislation.

78. I cannot endorse those concerns, however. It may be pointed out here that, in connection with Article 13(1) of the VAT Directive, which also lays down the condition that there must be no distortion of competition and is also directly applicable, ( 39 ) the Court has already held on a number of occasions that there is no obligation of more expansive transposition. In particular, the Court has already expressly held in this regard that the Member State does not have any duty to lay down additional conditions in the national transposing legislation. On the contrary, a Member State may choose the legislative technique which it regards as the most appropriate. It may, for example, merely incorporate into national law the form of words used in the directive or an equivalent expression. ( 40 )

79. In my view, the same principle also applies to the exemption provided for in Article 132(1)(f) of the VAT Directive. As I submitted in my Opinion in DNB Banka, ( 41 ) the exemption is sufficiently clear and unconditional and, therefore, directly applicable. That, moreover, was the basis on which the Republic of Poland transposed it. Whether a somewhat more specific form of transposition might have been more desirable from the point of view of the authority applying it is therefore irrelevant.

80. Consequently, the Republic of Poland cannot be accused of having failed to give more expansive expression in its national law to the requirement that there be no distortion of competition. This is particularly true given that every provision that gives fuller expression to a directly applicable directive exposes the Member State to an increased risk of infringing that directive and of being the subject of proceedings for failure to fulfil obligations.

81. The answer to be given to the referring court must therefore be that a provision of national law such as that at issue here, which does not prescribe any criteria or procedures with respect to compliance with the condition that there must be no distortion of competition, is compatible with Article 132(1)(f) in conjunction with Article 131 of the VAT Directive as well as with the EU law principles of effectiveness, legal certainty and the protection of legitimate expectations.

VI. Proposal for a decision

82. I therefore propose that the questions referred by the Naczelny Sąd Administracyjny (Supreme Administrative Court), Warsaw, be answered as follows: It must be assumed that, for these purposes, the national exemption is restricted to groups of taxable persons who perform transactions which are exempt under Article 132(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’). Groups of insurance undertakings do not therefore fall within the scope of Article 132(1)(f) of the VAT Directive.

( 1 ) Original language: German.

( 2 ) OJ 2006 L 347, p. 1.

( 3 ) Judgments of 15 June 1989, Stichting Uitvoering Financiële Acties (348/87, EU:C:1989:246); of 20 November 2003, Taksatorringen (C‑8/01, EU:C:2003:621); and of 11 December 2008, Stichting Centraal Begeleidingsorgaan voor de Intercollegiale Toetsing (C‑407/07, EU:C:2008:713).

( 4 ) In addition to the present proceedings, these are Cases C‑274/15, Commission v Luxembourg, C‑326/15, DNB Banka, and C‑616/15, Commission v Germany.

( 5 ) Case reference: C‑326/15.

( 6 ) Within the meaning of Council Regulation (EEC) No 2137/85 of 25 July 1985 on the European Economic Interest Grouping (OJ 1985 L 199, p. 1).

( 7 ) Judgment of 20 November 2003 (C‑8/01, EU:C:2003:621).

( 8 ) Opinion of Advocate General Mischo in Taksatorringen (C‑8/01, EU:C:2002:562).

( 9 ) Judgment of 11 December 2008, Stichting Centraal Begeleidingsorgaan voor de Intercollegiale Toetsing (C‑407/07, EU:C:2008:713).

( 10 ) Judgments of 21 March 2013, PFC Clinic (C‑91/12, EU:C:2013:198, paragraph 23); of 10 June 2010, Future Health Technologies (C‑86/09, EU:C:2010:334, paragraph 30); of 14 June 2007, Horizon College (C‑434/05, EU:C:2007:343, paragraph 16); of 20 June 2002, Commission v Germany (C‑287/00, EU:C:2002:388, paragraph 47); and of 28 November 2013, MDDP (C‑319/12, EU:C:2013:778, paragraph 25).

( 11 ) Judgments of 25 February 1999, CPP (C‑349/96, EU:C:1999:93, paragraph 23), and of 17 January 2013, BGŻ Leasing (C‑224/11, EU:C:2013:15, paragraph 67).

( 12 ) Judgments of 19 April 2007, Velvet & Steel Immobilien (C‑455/05, EU:C:2007:232, paragraph 24); of 10 March 2011, Skandinaviska Enskilda Banken (C‑540/09, EU:C:2011:137, paragraph 21); and of 12 June 2014, Granton Advertising (C‑461/12, EU:C:2014:1745, paragraph 30).

( 13 ) Judgment of 5 October 2016, TMD (C‑412/15, EU:C:2016:738, paragraph 32 et seq.).

( 14 ) See, inter alia, the Proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax, as regards the treatment of insurance and financial services (COM(2007) 747 final, p. 2) and the Communication from the Commission to the Council and the European Parliament on the VAT group option provided for in Article 11 of Council Directive 2006/112/EC on the common system of value added tax (COM(2009) 325 final, p. 4).

( 15 ) This is particularly true given that a broad interpretation of VAT exemption provisions is specifically rejected by the Court in its case-law. See in this regard, not least, point 22 above.

( 16 ) See the judgment of 20 November 2003 (C‑8/01, EU:C:2003:621).

( 17 ) Judgment of 20 November 2003, Taksatorringen (C‑8/01, EU:C:2003:621 paragraph 47 et seq.); the same is true of the Court’s 1989 judgment (of 15 June 1989, Stichting Uitvoering Financiële Acties, 348/87, EU:C:1989:246) in which a foundation sought exemption from VAT in its capacity as a group of persons and the Court refused to grant that exemption on other grounds. Whether a foundation, as an independent body of assets, can actually be described as a group ‘of persons’ is also more than doubtful.

( 18 ) See judgments of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446, paragraph 48); of 8 February 2007, Investrand (C‑435/05, EU:C:2007:87, paragraph 22); and of 22 December 2010, RBS Deutschland Holdings (C‑277/09, EU:C:2010:810, paragraph 38).

( 19 ) Judgments of 7 September 1999, Gregg (C‑216/97, EU:C:1999:390, paragraph 20); of 16 October 2008, Canterbury Hockey Club and Canterbury Ladies Hockey Club (C‑253/07, EU:C:2008:571, paragraph 30); and of 11 June 1998, Fischer (C‑283/95, EU:C:1998:276, paragraph 22).

( 20 ) Judgments of 4 May 2006, Abbey National (C‑169/04, EU:C:2006:289, paragraph 68); of 21 June 2007, Ludwig (C‑453/05, EU:C:2007:369, paragraph 35); and of 3 April 2008, J.C.M. Beheer (C‑124/07, EU:C:2008:196, paragraph 28).

( 21 ) Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1).

( 22 ) Judgment of 16 September 2008 (C‑288/07, EU:C:2008:505, paragraph 53).

( 23 ) Judgment of 16 September 2008, Isle of Wight Council and Others (C‑288/07, EU:C:2008:505, paragraph 49 et seq.).

( 24 ) Judgments of 19 November 2009, Sturgeon and Others (C‑402/07 and C‑432/07, EU:C:2009:716, paragraph 48); of 16 September 2010, Chatzi (C‑149/10, EU:C:2010:534, paragraph 43); and of 15 February 2016, N. (C‑601/15 PPU, EU:C:2016:84, paragraph 48 and the case-law cited).

( 25 ) Judgments of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 42); of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas (C‑196/04, EU:C:2006:544, paragraph 47); and of 13 December 2005, Marks & Spencer (C‑446/03, EU:C:2005:763, paragraph 35).

( 26 ) On this ground of justification, see, inter alia, judgments of 13 December 2005, Marks & Spencer (C‑446/03, EU:C:2005:763, paragraphs 45 and 46); of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 48); of 21 May 2015, Verder LabTec (C‑657/13, EU:C:2015:331, paragraph 47); and of 21 January 2010, SGI (C‑311/08, EU:C:2010:26, paragraph 60).

( 27 ) Judgments of 26 October 2010, Schmelz (C‑97/09, EU:C:2010:632, paragraph 57); and of 27 January 2009, Persche (C‑318/07, EU:C:2009:33, paragraph 52).

( 28 ) This arises where a group deducts input tax in a particular country because that country has refused to grant the VAT exemption on the ground that it assumes such distortions of competition to be present. In the Member State where the recipient of the supply is situated, on the other hand, because the VAT is reverse-charged to the group member, the transaction is assumed to be exempt on the ground that no distortions of competition are observed there.

( 29 ) See also in this regard, in a different context, inter alia, my Opinion in Joined Cases VDP Dental LaboratoryandStaatssecretaris van Financiën (C‑144/13, C‑154/13 and C‑160/13, EU:C:2014:2163, point 60); on the justification for a restriction of fundamental freedoms in relation to the special scheme for small undertakings, see also the judgment of 26 October 2010, Schmelz (C‑97/09, EU:C:2010:632, paragraph 57 et seq.) — justification for restricting the freedom to provide services in order to ensure the effectiveness of fiscal supervision.

( 30 ) The place of supply of goods to a final consumer is usually the place where dispatch of the goods begins (country of origin) and the supply is therefore subject to the rate of tax applicable in that country. Above certain thresholds, the VAT Directive therefore provides, in derogation from the foregoing, that the place of supply is to be the country of destination, in order to avoid the effect described above.

( 31 ) Judgment of 11 December 2008, Stichting Centraal (C‑407/07, EU:C:2008:713, paragraph 37), and Opinion of Advocate General Mischo in Taksatorringen (C‑8/01, EU:C:2002:562, point 118).

( 32 ) See to that effect, not least, the Opinion of Advocate General Mischo in Taksatorringen (C‑8/01, EU:C:2002:562, point 125 et seq.) — ‘it must be said that it [the market] is a thoroughly unusual one’.

( 33 ) See judgment of 20 November 2003, Taksatorringen (C‑8/01, EU:C:2003:621, paragraph 64).

( 34 ) See judgment of 20 November 2003, Taksatorringen (C‑8/01, EU:C:2003:621, paragraph 59) and Opinion of Advocate General Mischo in Taksatorringen (C‑8/01, EU:C:2002:562, point 131 et seq.).

( 35 ) Case reference: C‑326/15 — point 17 et seq.

( 36 ) See judgments of 23 February 1994, Comitato di coordinamento per la difesa della cava and Others (C 236/92, EU:C:1994:60, paragraph 10); of 17 September 1996, Cooperativa Agricola Zootecnica S. Antonio and Others (C 246/94 to C 249/94, EU:C:1996:329, paragraph 19); of 29 May 1997, Klattner (C 389/95, EU:C:1997:258, paragraph 33); and of 1 July 2010, Gassmayr, C 194/08 (EU:C:2010:386, paragraph 45).

( 37 ) Case reference: C‑326/15 — point 17 et seq.

( 38 ) See judgment of 20 November 2003, Taksatorringen (C‑8/01, EU:C:2003:621, paragraphs 58 to 65).

( 39 ) See judgments of 17 October 1989, Comune di Carpaneto Piacentino and Others (231/87 and 129/88, EU:C:1989:381, paragraphs 32 and 33), and of 8 June 2006, Feuerbestattungsverein Halle (C‑430/04, EU:C:2006:374, paragraph 31), concerning Article 4(5)(2) of the Sixth Directive.

( 40 ) See expressly to that effect, judgments of 17 October 1989, Comune di Carpaneto Piacentino and Others (231/87 and 129/88, EU:C:1989:381, paragraphs 18 and 23); of 15 May 1990, Comune di Carpaneto Piacentino and Others (C‑4/89, EU:C:1990:204, paragraph 14); and of 14 December 2000, Fazenda Pública (C‑446/98, EU:C:2000:691, paragraph 31).

( 41 ) Case reference: C‑326/15 — point 17 et seq.