Should Belgium amend its VAT rules for directors and members of a supervisory board?

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Recently, the European Commission formally requested the Netherlands to modify its rules on the treatment of members of supervisory boards for VAT purposes so as to make the rules comply with EU legislation. In the absence of a satisfactory response within two months, the European Commission may refer the Netherlands to the European Court of Justice ("ECJ").

Divergence between the Dutch rules and the Commission's opinion

Under Dutch rules, individuals do not have to register for VAT, nor pay VAT on the compensation they receive or file VAT returns, if they hold no more than four positions as a member of supervisory boards.
The European Commission considers that the activity of serving as a member of even one supervisory board must be considered as an economic activity subject to VAT.

Similarity with the Belgian administrative point of view

In practice, the Dutch rules amount to a waiver of VAT for services that should be taxed according to the VAT Directive. This situation can easily be compared with Belgium where services supplied by members of advisory boards acting in their statutory capacity are :

  • never subject to VAT if they are performed by individuals;
  • in principle subject to VAT (by default) or not subject to VAT (upon option) if they are performed by legal persons (e.g. holding companies acting as directors in their subsidiaries).

Impact in Belgium if the view of the Commission prevails

Should the European Commission's position be upheld by the ECJ, Belgium would likely have to amend these rules, which would represent both:

  • a hindrance for the legal persons who had opted not to be subject to VAT and for the individuals acting in supervisory boards of companies with (a limited or) no VAT deduction right. They would indeed have to invoice their services with VAT which would constitute an additional cost for their companies. However, the members of the supervisory boards would in turn be entitled to deduct the VAT borne on the (probably limited) costs that they incur in the framework of this activity ;
  • an opportunity for the individuals who are members of companies with a (high or) full VAT deduction right. The VAT on their services would indeed not be a (high) additional cost for their companies, but would entitle them to deduct the VAT borne on the costs that they incur in the framework of this activity.

Past opinion of AG contradicts the Commission's point of view

To our knowledge, this question has never been settled by the ECJ, but two of its Advocates General have expressed opinions in the past that seem to go radically against the opinion of the Commission. In the excerpt below, AG Fenelly expressed in 2000 that the services of directors or officers acting in their statutory capacity should not be subject to VAT, regardless of their status (i.e. individuals or legal persons).
"Nor, in my view, is there any question of economic activities independently carried on within the meaning of Article 4(1) of the Sixth Directive in the case of activities which the holding company, or persons acting in its name, carries out in its capacity as director or officer of a subsidiary company. A director or officer of the company does not act on his own behalf but only binds the (subsidiary) company whose instrument he is; in other words, where he acts in the exercise of his duties under the company instruments, there is no question of his acting "independently". In that regard, his actions must be equated with those of an employee who, as Article 4(4) of the Sixth Directive expressly states, does not act "independently"

Uncertainty ahead

However, the ECJ did not comment on this point of the opinion and judged against other points of the same opinion.
It is therefore impossible at this stage to infer the solution that the ECJ would give if it were requested to decide between the AG's opinion (services of directors never subject to VAT), the European Commission's point of view (services of directors always subject to VAT) or any intermediary position.