Dutch VAT Cost-Sharing Exemption: Key Legal Opinion

The VAT cost-sharing exemption allows an independent group of persons, subject to certain conditions, to provide services to its members without VAT. It is particularly relevant where members have no or only limited input VAT deduction rights, since VAT on jointly organised activities would otherwise become an irrecoverable cost.

One condition is that the exemption must not distort competition. The Netherlands implements this by excluding certain categories of services from the exemption in advance, without assessing whether the exemption would actually distort competition in the circumstances concerned.

On 17 July 2026, Advocate General C.M. Ettema issued her Opinion in case ECLI:NL:PHR:2026:741, addressing whether these Dutch exclusions are compatible with Article 132(1)(f) of the VAT Directive, and specifically whether services may be categorically excluded because they are considered capable of distorting competition. She concludes that the Dutch approach goes beyond what the Directive permits, and that the risk of distortion must instead be assessed on the facts of each case.

Facts and Circumstances

The taxpayer is a public-law cooperation body formed by 21 Dutch water authorities under the Dutch Joint Arrangements Act, carrying out various programmes, projects and services for its participants, with costs allocated between them on agreed keys.

Three IT-related services are at issue. CERT-WM concerns cybersecurity cooperation: the project is staffed by employees of the water authorities themselves, with the cooperation body providing supervision and participants receiving advice on IT vulnerabilities. The Modernisation of Catch Registration involved the 21 water authorities instructing the cooperation body to deliver an IT product for catch registration and supervise its management and maintenance for four years, using third-party services for development and implementation. WILMA concerns the further development of a shared IT reference architecture, built by collecting best practices from different water authorities into a common framework.

The tax inspector had previously accepted application of the cost-sharing exemption, but withdrew that position with effect from 1 January 2019, after which the cooperation body began charging VAT. None of the 21 water authorities withdrew from the cooperation arrangement as a result, a fact that later proved central to the competition assessment. The dispute ultimately concerned whether these services could be excluded from the exemption under Dutch rules, and whether those rules are themselves compatible with the VAT Directive.

Proceedings Before the District Court and Court of Appeal

The Gelderland District Court ruled for the taxpayer, finding that the services did not qualify as the IT services excluded under Article 9a of the Dutch VAT Implementing Regulation. The Arnhem-Leeuwarden Court of Appeal reached the same outcome via a broader route: it held that Article 9a creates a general presumption that the listed services distort competition, and that such a categorical approach is incompatible with the VAT Directive. Instead, distortion must be assessed per service, with the taxpayer bearing the burden of proving no distortion would result.

For CERT-WM, the Court found no market existed, since the service required highly specific knowledge of the water authorities that could not be purchased from third parties. For the Modernisation of Catch Registration and WILMA, the Court accepted that commercial operators could in principle provide comparable services, but held this alone was insufficient to establish distortion. It attached weight to the fact that none of the water authorities left the cooperation arrangement after VAT started being charged in 2019, and on that basis applied the exemption to all three services.

Appeal Before the Supreme Court

The State Secretary for Finance appealed on three related grounds. The first challenges the finding that Article 9a is incompatible with the Directive, arguing that it excludes specifically defined services that are, by their nature, capable of distorting competition, rather than imposing an impermissible general restriction. The second and third grounds challenge the Court's factual assessment: for the Modernisation of Catch Registration and WILMA, the State Secretary argued that the availability of comparable commercial services itself demonstrated a real risk of distortion; for CERT-WM, that the Court should have considered not only the current absence of a market but also the possibility of future competition.

The appeal before the Supreme Court therefore raises two closely related questions: whether the Netherlands may categorically exclude certain services from the exemption and how the risk of distortion of competition should be assessed where the exemption is claimed.

Legal Framework

Article 132(1)(f) of the VAT Directive exempts services supplied by an independent group of persons to its members, where the members carry out exempt activities or activities for which they are not taxable persons, the services are directly necessary for those activities, the group claims only reimbursement of each member's exact share of joint expenses, and the exemption is not likely to distort competition. Only this last condition is at issue here.

Article 131 of the Directive allows Member States to set conditions ensuring correct and straightforward application of exemptions and preventing fraud, evasion and abuse, but, per settled CJEU case law, such conditions may never alter an exemption's substantive scope.

The Netherlands implements the cost-sharing exemption in Article 11(1)(u) of the Dutch VAT Act 1968. Article 11(8) allows certain supplies to be excluded by ministerial regulation to prevent distortion of competition, and Article 9a of the Implementing Regulation lists the relevant exclusions, including the development of automated information and communication systems, related software, supervision of such systems, the provision of computer equipment, and the supply of personnel. Services within these categories are excluded under Dutch law without any individual assessment of their actual competitive effect.

Opinion of Advocate General Ettema

Drawing on CJEU case law, including Taksatorringen, Commission v Germany, Infohos, and the joined cases Agrupació de Neteja Sanitària and Educat Serveis Auxiliars, the Advocate General concludes that Member States may not treat entire categories of services as automatically distortive. Under Articles 11(8) and 9a, the listed services are excluded automatically, irrespective of whether a genuine risk of distortion actually exists in the individual case, and this, in her view, effectively redefines the substance of the competition condition in Article 132(1)(f). The discretion Member States enjoy under Article 131 does not extend that far: national rules may simplify administration and control, but may not alter an exemption's substantive conditions. She therefore finds the Dutch categorical exclusion contrary to the Directive.

The correct test, in her view, is whether a genuine risk exists that the exemption itself may lead, now or in future, to distortion of competition. The existence of commercial operators offering comparable services is relevant but not decisive on its own. What matters is the causal link between the exemption and the risk of distortion.

Applying this to the Modernisation of Catch Registration and WILMA, the Advocate General rejects the State Secretary's argument that the availability of comparable commercial services alone establishes a genuine risk. Citing Taksatorringen, she notes that the existence of competitors does not automatically mean the exemption distorts competition. An important factor in this respect was that none of the water authorities left the cooperation body after VAT started being charged in 2019. The cooperation body therefore retained its members even without the VAT advantage resulting from the exemption, which supported the conclusion that the exemption itself did not create a genuine risk of distortion. This ground of appeal therefore fails.

CERT-WM is assessed slightly differently. The Court of Appeal found no market existed given the specialised knowledge required, while the State Secretary argued that future competition should also have been considered. The Advocate General agrees the test is not limited to the current market situation, and that the Court's judgment does not make entirely clear whether future risk was specifically weighed for CERT-WM. Even so, she considers this immaterial, since the Court's broader finding, that the cooperation body retained its members after VAT was introduced, equally supports the conclusion that no genuine risk of current or future distortion exists for CERT-WM.

Because the Dutch rules are incompatible with the Directive, the Advocate General considers that taxpayers may rely directly on Article 132(1)(f), which she regards as sufficiently clear, precise and unconditional to have direct effect. This does not make the exemption automatically available, however: consistent with the Court of Appeal, she places the burden of proof on the taxpayer, who must demonstrate that applying the exemption in the specific circumstances would not distort competition.

Although Article 9 of the Dutch VAT Implementing Decree was not at issue in these proceedings, the Advocate General expressly states that, in her view, the same reasoning also applies to the exclusions contained in that provision. Article 9 excludes certain services from the cost-sharing exemption, including specific administrative services.

This observation is therefore not part of the dispute that the Supreme Court is required to decide in the present case. Nevertheless, it indicates that, in the Advocate General's view, the implications of her analysis are not necessarily limited to the exclusions contained in Article 9a.

Overall, the Advocate General advises dismissing the State Secretary's appeal. She finds the Article 9a exclusion incompatible with the Directive, agrees the taxpayer may invoke the Directive directly, and considers the Court of Appeal's factual assessment of all three services sufficient to support its conclusion. In her view, existing CJEU case law provides sufficient guidance, so no preliminary reference is required.

Practical Implications

If the Supreme Court follows this Opinion, its impact could extend well beyond IT services. Services could no longer be excluded from the cost-sharing exemption simply because they appear on the Article 9a list; the competition condition would instead require a case-by-case assessment. This is potentially relevant for any cooperation structure currently charging VAT because its services fall within a Dutch exclusion.

That said, taxpayers could not simply disregard Article 9a. The burden of proof remains theirs, and they would need to substantiate, factually, that applying the exemption creates no genuine risk of distortion. Relevant evidence would likely include the availability of comparable commercial services, the specific nature of the services concerned, the reasons members use the cooperation structure, and whether members would remain even if VAT were charged.

The fact that all 21 water authorities remained with the cooperation body after VAT started to be charged was an important factor in the assessment. Similar evidence may therefore be relevant in other cases when assessing whether application of the exemption itself creates a genuine risk of distortion of competition.

Existing cooperation structures whose services are currently taxed solely because of a Dutch exclusion may therefore want to reassess their position. For earlier periods, more caution is warranted: the Opinion does not create an unrestricted right to retroactive application, and whether past VAT treatment can still be corrected depends on the taxpayer's procedural position and applicable objection, refund and limitation deadlines. It also remains only an Opinion: the Supreme Court has yet to rule.

Conclusion

The Opinion challenges a long-standing feature of the Dutch cost-sharing exemption regime. According to Advocate General Ettema, the Netherlands cannot categorically exclude services from the exemption merely on the assumption that they distort competition: Article 132(1)(f) requires a genuine, case-specific risk assessment, for which the mere existence of a commercial market is relevant but not sufficient on its own.

This does not make the exemption automatically available for currently excluded services. The burden remains on the taxpayer to show no distortion arises. But if the Supreme Court follows the Opinion, the focus shifts from a fixed exclusion list to the actual competitive effect of applying the exemption in each case, giving affected cooperation structures a basis to reconsider their VAT position.