On January 22, 2026, the European Court of Justice (ECJ) issued a landmark ruling in joined cases C‑379/24 and C‑380/24, addressing the scope of the VAT exemption for cost-sharing groups under Article 132(1)(f) of the EU VAT Directive [1]. The decision provides long-awaited clarity on how broadly this exemption should be interpreted, particularly in relation to general support services such as cleaning, IT, and administration and sets important boundaries on how Member States may apply the “distortion of competition” provision.

The ruling has immediate implications for public interest sectors across the EU, especially in Spain, Germany and the Netherlands, where national laws and administrative practices have historically taken a narrow view of the exemption. For tax-exempt entities in healthcare, education, and social services, the judgment opens the door to more flexible and VAT-efficient collaboration models.

In this newsletter, we outline the EU legal framework, summarize the facts and findings of the ECJ decision, and analyze the practical consequences for Spain and Germany.

EU Legal Framework: Article 132(1)(f) VAT Directive

Article 132(1)(f) of Directive 2006/112/EC exempts services provided by independent groups to their members if:

• Members carry out VAT-exempt or non-taxable activities.
• The services are directly necessary for those activities.
• The group charges only exact cost reimbursement.
• The exemption does not distort competition.

The provision is designed to prevent irrecoverable VAT from burdening public interest activities, when smaller entities collaborate to share essential services. However, its application has been inconsistent across Member States, particularly regarding the meaning of “directly necessary” and the interpretation of “distortion of competition.”

Case Background and ECJ Decision

The joined cases involved two Spanish cost-sharing groups:

• Agrupació de Neteja Sanitària AIE (ANS), serving hospitals;
• Educat Serveis Auxiliars SCCL, serving educational institutions.

Both provided cleaning services to their members and subcontracted personnel management to third parties. The Spanish tax authorities denied the VAT exemption, arguing that the services were not provided “directly” by the groups, were not “exclusively” linked to the exempt activity, and could distort competition.

The ECJ rejected this interpretation on both counts:

• “Directly necessary” does not mean “exclusively” necessary. Services like cleaning can qualify if they are typically required to carry out the exempt activity (e.g., hygiene in hospitals or schools).
• A general presumption of competition distortion is not sufficient. Only specific, demonstrable risks, such as abuse can justify denying the exemption.

The CJEU emphasized that Member States may not impose additional conditions that alter the substance of the EU exemption. The ruling aligns with the purpose of Article 132(1)(f): to facilitate cost-effective cooperation among exempt entities without creating undue VAT burdens.

Implications for Spain

Spain’s VAT law (Article 20.Uno.6º of Law 37/1992) requires services to be used “directly and exclusively” in the exempt activity. The Spanish Tax Authorities interpret [2] such wording in terms that the exemption does not cover general services, which - in their view - do not have a direct relationship with the exempted activity (e.g., education, healthcare), to the extent that they are not sufficiently necessary for the performance of the exempt or non-taxable activity. Therefore, in practice, they require the services to be specific to the VAT exempt activity.

This interpretation is now incompatible with EU law. Spain must:

• Adjust administrative practice to accept general services (e.g., cleaning, IT) as potentially qualifying.
• Apply the competition distortion clause only in cases of concrete abuse.

This will broaden access to the exemption for healthcare, education, and other public interest sectors.

Implications for Germany

Germany implemented Article 132(1)(f) via sec 4 para 29 of the German VAT Act (UStG) in 2020. While the law does not require “exclusivity,” administrative guidance has interpreted “unmittelbar erforderlich” (directly necessary) narrowly. Services like cleaning or administrative support have often been excluded [3].

Following the ECJ ruling, Germany should:

• Reinterpret “unmittelbar erforderlich” in line with the ECJ’s broader understanding.
• Revise restrictive passages in the UStAE (e.g., Abschnitt 4.14.8) and BMF guidance.
• Limit the application of the “Wettbewerbsverzerrung” clause to genuine abuse cases.

This would align German practice with EU law and support smaller exempt entities in accessing shared services without VAT leakage.

Implications for the Netherlands

The Netherlands has implemented Article 132(1)(f) of the EU VAT Directive through Article 11(1)(u) of the Dutch Turnover Tax Act 1968 (Wet op de Omzetbelasting 1968).

The Dutch tax authorities have traditionally applied a narrow interpretation of the exemption. This is also embedded in the Dutch VAT Implementation Decree (in Dutch: Uitvoeringsbeschikking) that includes a list of services presumed to distort competition (e.g., software development, provision of staff etc.), which has led to general exclusions from the exemption. The ECJ’s ruling directly challenges this approach. Furthermore, the judgment restricts the application of the competition distortion clause to demonstrable cases of actual market interference, rather than theoretical or categorical assumptions.

As a result of the ECJ ruling, the Netherlands should:

• Revise its enforcement practices to align with EU law.
• Reassess the restrictive interpretations embedded in the Dutch VAT Implementation Decree that currently excludes specific services.

The ruling is particularly relevant for healthcare, education, and public sector entities that rely on cost-sharing arrangements to manage overhead services efficiently and VAT-neutrally.

A&M Tax Viewpoint

The ECJ’s decision provides welcome clarity and a more practical framework for applying the cost-sharing exemption. It reinforces the principle that VAT should not penalize collaboration among exempt entities in the public interest. Taxpayers and advisors should review existing cost-sharing arrangements and assess whether services previously considered taxable may now fall within the scope of the exemption. Member States, in turn, must ensure that their legislation and administrative guidance reflect the Court’s interpretation, removing unjustified barriers and focusing enforcement on genuine abuse.

If you would like to discuss how this ruling may affect your organization or cost-sharing structure, please reach out to your Alvarez & Marsal Tax contact or one of the authors of this article.