CSE4260 | How the conditions are to be interpreted: CSGs and VAT Groups: How do CSGs and VAT groups interact in practice?

When a CSG is a member of a VAT group:

All supplies made by a CSG that is a member of a VAT group to members who are also members of the same VAT group will be outside the scope of the VAT system (they are not exempt or non-business supplies for VAT purposes).

All supplies from other VAT group members to a CSG that is in the same VAT group, whether they are CSG members or not are also outside the scope of the VAT system (they are not exempt or non-business supplies for VAT purposes). However if such supplies are used as a mechanism to artificially inflate the costs of supplies made by the CSG to its members to extract a profit, or an uplift is charged to its members for transfer pricing purposes, then the CSG will fail to meet the ‘exact reimbursement’ condition and will be treated as fully taxable.

Supplies of qualifying services by a CSG that is a member of a VAT group to CSG members who are outside of that VAT group will fall within the exemption (subject to all the conditions being met) and will form part of the VAT groups exempt supplies.