A member of the management board will be a VAT taxpayer when certain conditions are met
A member of the management board who does not act in his own name and on his own account and who does not bear the economic risk of the services provided to third parties will not be considered a VAT taxpayer, according to a ruling by the CJEU (C-288/22).
According to previous court rulings, including those of the CJEU, a member of the management board of a capital company may be deemed to be a VAT taxpayer. However, in order for this to be the case, certain conditions must be met, including, inter alia, that the board member is liable to third parties.
The case analysed by the CJEU concerned a member of the management board who performs this function in several public limited companies in Luxembourg. The board member had not signed any contract with the companies that implied subordination. His remuneration was sometimes set as a percentage of profit and in other cases was a fixed amount (lump sum). The Luxembourg tax authority considered that he was carrying out an independent, organised business activity and was therefore a VAT taxpayer and, consequently, should pay VAT on the remuneration he received. The board member took the opposite view and entered into a dispute with the tax authority. The case eventually came before a Luxembourg court, which referred the question to the CJEU for a preliminary ruling.
The CJEU held that a member of the board of directors will be engaged in an economic activity if he or she provides services to the company and his or her activities are of a permanent nature and he or she receives remuneration for his or her services, the determination of which is foreseeable. Analysing the case, the CJEU pointed out that in the circumstances at hand, the activity is of a permanent nature as the board member was appointed for a renewable term of up to 6 years. On the issue of remuneration, the CJEU clarified, on the other hand, that a board member can also be subject to VAT when the remuneration is set as a percentage, depending on the profit.
However, in this case, the key circumstance was that the board member was not bound to the company by a relationship of subordination and did not have any liability towards third parties – this was incumbent on the company. Therefore, in the end, the CJEU ruled that in this case the board member would not be a VAT payer.
– This judgment is in line with the previous line of rulings by national administrative courts and is based on the same criteria for assessing whether a member of the management board of a capital company should be regarded as a VAT payer. It shows how important the issue of the independence of the business conducted and the liability of the member of the management board towards third parties is. For as long as the board member does not bear his own economic risk and personal liability, he will not be a VAT taxpayer and his remuneration will not be subject to VAT. This issue should therefore be subject to detailed analysis in each case, so as to exclude the risk of unjustified deduction of input VAT from invoices received by companies from their management board members, explains Anna Konieczna-Nowak of Thedy & Partners.