Discussion on VAT treatment Supervisory Board member resurfaced after ECJ ruling

ECJ: Member Supervisory Board (IO) not liable for VAT

In a recent VAT case, the ECJ ruled (C-420/18, “IO”-case) on the VAT treatment of the remuneration of a member of the Supervisory Board of a Dutch foundation. His fee is not subject to VAT. Lack of independence for VAT (i.a. not acting in his own name), shortage of personal liability for civil law and absence of own business risk are important elements in this respect. The VAT on his expenses is not deductible.

Due to the ECJ's case-specific judgment, much remains unclear. The decision concerns one particular type of Supervisory Board membership with activities for remuneration.

PwC: Member Supervisory Board can be liable for VAT

In PwC's view, the outcome may be different, for example if a Supervisory Board member:

• performs also other (VAT-taxed) activities,
• is holding various Supervisory Board memberships against payment,
• incurs substantial expenses in the performance of his duties as a member of the Supervisory Board, 
• has more extensive liability for civil law (e.g. in a one-tier board or due to the other form of (personal) liability in the case of a BV/NV) compared to the liability that arises in the case of supervision of a Dutch foundation), 
• has also supervisory tasks in which he acts in his own name, or obtains a remuneration which is linked to the presence (at various committees) or his functioning.

Moreover, the decision of the ECJ deviates from the policy in force in the Netherlands since 2013, which worked well in Dutch practice.

PwC is therefore of the opinion that it has not yet been established for other types of Supervisory Board memberships that the ECJ's judgment also applies to them. We realize that it is annoying and undesirable in practice that certain situations are not (yet) clear. PwC will be urging the authorities to adopt a supplementary policy as soon as possible. In the meantime, we propose the following practical course of action.

What needs to be done in the short term?

If your situation is identical to that of the above ECJ-case, we advise you from now on, no longer to charge VAT, no longer to deduct VAT and to deregister as a Dutch VAT entrepreneur.

In other cases, we recommend that you continue your current practice for the time being. The safe way is to lodge an objection, but this only has to be filed within six weeks after payment of the VAT on your VAT return. Most Supervisory Board members will therefore have sufficient time to await the Dutch State Secretary's answers to parliamentary questions that have already been asked. We expect that his answers will provide some clarity about the practical policy your VAT officer will follow.

Your situation might however be that already before the Dutch State Secretary will provide answers to the questions from the Dutch Parliament, you have to submit your VAT return and make a payment. If you would like to lodge an objection, we recommend that you contact your advisor. In case the company you are supervising board does not have a (full) right to deduct VAT, we recommend that you follow the same approach.

As soon as we know the Dutch State Secretary's answers, we will inform you further.

Please note that the above could also be relevant for a supervisor or a non-executive member of the Board of Directors.

If the member of the Supervisory Board (or a supervisor or a non-executive member of the Board of Directors) resides outside the Netherlands, a slightly different approach must be chosen, about which we will be happy to inform you further. If you wish, we can make the standard documents available to you.