Since 2013, members of a Supervisory Board (supervisors) qualify as VAT entrepreneurs for their activities under normal circumstances and are, therefore, subject to VAT. In 2019, the EU Court of Justice ruled in the IO case that the supervisor in that particular case was not a VAT taxable person. Subsequently, the Dutch State Secretary announced that a ruling from the Dutch Supreme Court was expected and that supervisors had to contact their tax inspector for an assessment of their situation. As a result, recently there has been a great deal of uncertainty about the VAT position of supervisors.
In our opinion, the recent judgment of the Dutch Supreme Court provides more clarity. As a result of this ruling, we expect supervisors will now be less likely to be considered entrepreneurs for VAT than they used to be and supervisors who currently are considered VAT entrepreneurs may no longer have to pay VAT. They may, therefore, no longer be able to deduct input VAT on costs incurred. In addition, the ruling may have consequences for VAT deducted in the past. On the other hand, if the organisation the supervisor works for does not have a (full) right to deduct VAT, the ruling of the Dutch Supreme Court will be favourable for those organisations as well. After all, the organisation will then not be confronted with non-deductible VAT, which is an expense.
The Dutch Supreme Court recently ruled on the VAT position of a member of an Advisory Committee on Objections. According to the Dutch Supreme Court, members of this Advisory Committee on Objections cannot be regarded as independent VAT entrepreneurs because the members do not have individual tasks and responsibilities. These members do not act in their name, for their own account, and/or under their own responsibility, nor do they have any economic risk. According to the Dutch Supreme Court, while it is true these members face some uncertainty because they are not guaranteed a certain number of days of sitting as an Advisory Committee on Objections, this factor alone does not make them independent VAT entrepreneurs.
Although the Dutch Supreme Court case concerned members of an Advisory Committee on Objections, the decision is also important for supervisors. Based on the Dutch Supreme Court's ruling, we believe that if a supervisor has no powers and duties of his or her own and always acts as a representative of the board, he or she should not qualify as a VAT entrepreneur.
We recommend all members of a Supervisory Board take a closer look at their VAT position as a result of this case. We suggest that organisations that have a limited right to deduct input VAT should persuade the members of their supervisory board to carefully assess whether the supervisors truly act in their own name and for their own account and under their own responsibility. After all, such an assessment can be of financial benefit to these organisations and eliminates any VAT risks for the supervisor. In addition, it avoids administrative work that, for efficiency, is often entrusted to the organisation, for example, invoicing on behalf of the supervisor (so-called 'self-billing').
When making this assessment, the answer to the following question is, in our opinion, important: can you exercise the powers assigned to the Supervisory Board individually and in a personal capacity, or are you not acting under a mandate or on behalf of the Supervisory Board? If you answer that you are exercising these powers individually and not under a mandate or on behalf of the Supervisory Board, then you most likely are a VAT entrepreneur, provided that you also run an economic risk. If the latter is not the case, then liability towards third parties still has to be considered. If you can be held personally liable for damage caused to third parties, then you can qualify as a VAT entrepreneur. In our opinion, this does not apply if you can only be held liable in exceptional cases, for example in the event of neglect of duty, and normally the Supervisory Board or the organisation is liable.
Madeleine Merkx
madeleine.merkx@bdo.nl
Anne Janssen
anne.janssen@bdo.nl