ECJ’s Decision: No VAT on Remuneration of Supervisory Board Members
By Brigitte Jakoby, Jakoby Dr Baumhof - Wirtschaftsprüfer Steuerberater Rechtsanwälte
The case before the European Court of Justice (ECJ) concerned a member of the supervisory board of a foundation located in the Netherlands. The tasks of the supervisory board are to decide on the composition of the management, to supervise it and to approve its financial statements. The plaintiff received a fixed remuneration for carrying out these tasks regardless how many board meetings he had to attend or how many hours he had to spend on those meetings.
The ECJ decided that the plaintiff was not independently operating regarding his economic activities for the supervisory board. He did not provide any services which were subject to VAT.
The ECJ reasoned that the plaintiff did not act in his own name or on his own account and had to face no economic risks, but was one part of the full supervisory board and could not act or decide alone regarding these tasks. In contrast to an entrepreneur, the plaintiff had no influence on his remuneration. The payment was not calculated based on the spent time.
Furthermore, it was important for the ECJ that the plaintiff was in a subordinate relationship to the supervisory board of the foundation. The ECJ rejected the consideration that the plaintiff is seen as an employee. The task of supervising the management is not compatible with an employment relationship bound by instructions. The subordinate position of the members of the supervisory board derives from the fact that the board´s members cannot perform their powers individually.
The decision of the ECJ gives a wide range for arguments for or against the independence of supervisory board members. Should a member of a supervisory board have not paid attention to his VAT liabilities, the EJC’s decision can be helpful to escape from this obligation.
Also, corporations which must pay the remunerations and are not able to deduct VAT (e.g. insurance companies) can benefit from this decision.
Brigitte JakobyGGI member firm
Jakoby Dr Baumhof - Wirtschaftsprüfer Steuerberater Rechtsanwälte
Advisory, Auditing & Accounting, Corporate Finance, Law Firm Services, Tax
Rothenburg o.d.T., Ebersberg, Germany
T: +49 9861 9405 0
Jakoby Dr Baumhof - Wirtschaftsprüfer Steuerberater Rechtsanwälte is a mediumsized interdisciplinary company located in the south of Germany, with offices in Rothenburg o.d. Tauber, located in Northern Bavaria, and Ebersberg, near Munich.
In 1987, Brigitte Jakoby started collaborating with her husband Eugen Jakoby, also a German Chartered Accountant and German Certified Tax Advisor. Since 1996, she has been one of the Senior Partners at Jakoby Dr. Baumhof.
Published: Indirect Taxes Newsletter, No. 09 Autumn 2019 l Photo: alfa27 - stock.adobe.com