European Court of Justice Rules on VAT Status of Board Members of Public Limited Companies
On 21 December 2023, the European Court of Justice (ECJ) issued a decision in case C-288/22 (Administration de l’Enregistrement, des Domaines and de la TVA) regarding the VAT status of a member of the board of a public limited company. The question at hand was whether this board member should be considered a taxable person or not.
The case revolved around the interpretation of Article 9 of the EU VAT Directive 2006/112/EC, which defines a taxable person as “any person who, independently, carries out in any place any economic activity.” It further explains that any activity of producers, traders, or service providers, including mining, agriculture, and the professions, should be regarded as an economic activity. The exploitation of tangible or intangible property for the purpose of obtaining income is also considered an economic activity.
In addition, Article 9 states that any person who occasionally supplies a new means of transport outside the territory of a Member State but within the Community should be regarded as a taxable person.
The facts of the case involved a private individual, referred to as TP, who was a member of the board of directors of several public limited companies incorporated under Luxembourg law. These companies included a bank in Luxembourg, a holding company in a logistics group listed on the Frankfurt stock exchange, and two holding companies in a pharmaceuticals group listed on the Paris stock exchange.
As a board member, TP participated in decisions regarding accounts, risk management policy, and overall strategy for the respective groups. He also played a role in developing proposals for shareholders’ meetings. The day-to-day management of the first two companies was handled by an executive committee, while the other two companies did not require such a committee.
The Luxembourg tax authorities raised a VAT assessment against TP for the “director fees” he had charged. They argued that a company director carries out an economic activity and should not be exempt from VAT. TP, on the other hand, contended that a board member does not carry out their activity independently but rather as a representative of the legal person.
The Advocate General (AG) provided an opinion on the matter, stating that the determination of an independent economic activity should be based on a typological comparison. The crucial factor is whether the person bears an economic risk personally and acts on their own economic initiative. However, the AG also noted that a natural person who receives remuneration as a member of a company body cannot be considered as carrying out an independent economic activity.
The key questions before the ECJ were whether a board member of a public limited company in Luxembourg is carrying out an economic activity and whether they are acting independently. The ECJ ruled that a board member does indeed carry out an economic activity if they provide services to the company for consideration on a permanent basis and if the remuneration is predictable.
However, the ECJ also determined that the activity of a board member is not exercised independently if, despite organizing the modalities of their work freely, they do not act on their own behalf or under their own responsibility and do not bear the economic risk associated with their activity.
This ruling by the ECJ provides clarity on the VAT status of board members of public limited companies. It establishes that such board members can be considered taxable persons if they meet the criteria of carrying out an economic activity and acting independently. It also highlights the importance of considering the economic risk and personal initiative of individuals in determining their VAT status.
This decision will have implications for companies and board members in Luxembourg and across the European Union. It emphasizes the need for careful consideration of the VAT obligations and responsibilities of board members and the potential impact on their remuneration.
Overall, the ECJ’s ruling in case C-288/22 provides valuable guidance on the interpretation of the EU VAT Directive and its application to board members of public limited companies. It reinforces the principle of neutrality of legal form and ensures consistency in the treatment of VAT across member states.
