VAT liability for supervisory board members

Introduction

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2. Legal situation regarding the VAT liability of supervisory board members

As a lawyer with a focus outside of tax law, I still find it important to address relevant legal issues that affect companies. The VAT treatment of supervisory board members is one such issue. It is important for many of my readers, as it has significant implications for business practice. The latest rulings in this area provide important insights into the current legal situation.

Key Facts

VAT treatment of supervisory boards is important for many companies and has significant practical implications.
The question of whether supervisory board activities are entrepreneurial has long been debated.
The tax authorities consider supervisory board members with variable remuneration of 10% or more to be self-employed.
Cologne Fiscal Court ruled on November 15, 2023 that attendance fees alone do not create an economic risk.
European Court of Justice ruled on December 21, 2023 that there is no entrepreneurial status in the absence of risk.
Rulings clarify the VAT treatment of supervisory board activities and the distinction between entrepreneurial and non-entrepreneurial activities.
Decisions can affect the finances of supervisory boards, depending on whether input tax deduction is possible.

Legal situation regarding the VAT liability of supervisory board members

The VAT treatment of supervisory board members, in particular the question of whether their activities are to be regarded as entrepreneurial, has long been the subject of legal debate. The tax authorities assumed that supervisory board members with a variable remuneration component of at least 10% of the total remuneration are to be regarded as self-employed and entrepreneurial. However, this view and in particular the definition of a quantitative limit have been questioned in legal practice.

Decision of the Cologne Fiscal Court

The Cologne Fiscal Court commented on this issue in its ruling dated November 15, 2023 (9 K 1068/22). In the case in question, the plaintiff, who was chairman of the supervisory board of several stock corporations, received attendance fees that amounted to more than 10% of his total remuneration. The tax office considered him to be entrepreneurially active. However, the court ruled that the meeting-based remuneration alone is not sufficient to establish an economic risk that characterizes an entrepreneurial activity.

In a parallel case, the European Court of Justice ruled on December 21, 2023 (C-288/22, TP case) on the activities of a member of the board of directors of Luxembourg stock corporations. The ECJ ruled that there was no entrepreneurial status as there was no economic risk for the plaintiff, in particular as the performance-related bonuses did not represent a concrete risk of profit or loss for the plaintiff.

Legal assessment and effects

The recent rulings of the Cologne Fiscal Court and the European Court of Justice help to clarify how supervisory board activities are to be treated for VAT purposes, particularly with regard to the distinction between entrepreneurial and non-entrepreneurial activities. These decisions have significant implications: While they allow for input tax deduction for some boards that are considered to be engaged in business, they could result in an additional financial burden for others whose activities are considered to be non-business, as VAT is a cost for companies without input tax deduction rights

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.