The European Commission is taking Luxembourg to the EU's Court of Justice (ECJ) on the state’s VAT arrangements applicable to independent groups of people, particularly exemptions around membership groups.
Under European law, in order to be exempt from VAT, the services provided by an independent group to its members must be directly required for their non-taxable or exempt activities. The Luxembourg rule providing for a ceiling for taxed operations does not fulfil this condition. The EC says that it is not incompatible with EU VAT rules. It is also likely to give rise to distortions of competition.
The EC has also asked Luxembourg to abolish the discriminatory tax regime applied to taxpayers who reinvest property income abroad, meaning outside Luxembourg but within the EU/EEA. Capital gains tax (CGT) resulting from the sale of property which are reinvested abroad are taxable immediately, whereas the same capital gains, if reinvested in property in Luxembourg, benefit from a temporary tax deferral.
This applies to owners of property in Luxembourg regardless of whether they are resident in Luxembourg or in another EU/EEA country. The EC views this as an unjustified restriction on the free movement of services and free movement of capital and it may decide to take Luxembourg to the ECJ if Luxembourg does not provide a satisfactory response within two months,
Where it detects a failure to comply with EU law, the European Commission (EC) may initiate the procedure for failure to fulfil an obligation provided for in the Treaty on the Functioning of the European Union (TFEU), Article 258.
The infringements procedure has three stages: formal notice, reasoned opinion and referral to the Court.
More details are available at http://ec.europa.eu/taxation_customs/common/infringements/infringement_cases/bypolicy/index_en.htm