How the conditions are to be interpreted: Distortion of competition: What does the ECJ case of Taksatorringen (C-8/01) comment on the ‘Distortion of Competition’ point?
This point was looked at by the ECJ in the case of Taksatorringen (C-8/01  STC 1842). Taksatorringen was a Danish CSG formed by a number of insurance companies to provide them with claims handling services. The point in dispute was whether or not the arrangement breached the distortion of competition condition as such services were also provided by commercial (with profit) suppliers on an outsourced basis.
The Advocate General in Taksatorringen case stated the following:
“121. There are two fundamental requirements that must be met in order to qualify for an exemption. First, the independent external service provider must consist only of operators carrying out an activity which is exempt from, or not subject to, VAT. Secondly, it is essential that the group does not exist for purposes of gain, in the sense that it only charges its members for expenses incurred by it in order to meet their requirements, and makes no profit whatsoever out of doing so.
- This means that the group must be entirely transparent and that, from an economic point of view, it must not have the characteristics of an independent operator seeking a customer base in order to generate profits.”
The Court itself found that the exemption can only be denied, under this condition, when it is the use of the exemption itself that gives rise to distortion of competition and a CSG cannot fail the distortion of competition condition simply because it is in a more advantageous competitive position because it complies with the requirement that it charges only an ‘exact reimbursement’ of costs.
“64. It follows that the grant of VAT exemption must be refused if there is a genuine risk that the exemption may by itself, immediately or in the future give rise to distortion of competition”