Debt prevention for mentally disabled clients exempt from VAT

Dutch court decides on the applicability of the VAT exemption on budget management.

Interested party provides budget management, budget guidance and budget advice. Sometimes, the legal instruments of protection or guardianship are applied. He rendered the services almost exclusively for people with a mental disability. None of the clients is able to manage their finances independently.

The court rules that the activities fall under an exemption for “debt counseling”. This includes not only help in solving debts, but also debt prevention. Debt counseling is not defined in Dutch tax laws or regulations. In the court’s opinion, the parliamentary history shows that not only help with problematic debts, but also debt prevention falls under debt counseling. The court has also considered this in line with the intention of the exemption.

According to the court, the services provided by the interested party qualify as debt prevention. The clientele of the interested party consists entirely of persons with intellectual disabilities that they are unable to conduct their own financial household properly. Without the services of the interested party, clients would therefore almost certainly incur debts, while, moreover, they would not be able to prevent those debts from becoming problematic at any time.

The court has taken into account the fact that the interested party has stated – without being contradicted – that the personal supervisors of the relevant clients also consider budget management necessary. Only administration under the legal “debt sanitation scheme” is expressly excluded from the exemption. The court infers from this, that as long as there is no bankruptcy or application of the legal “debt sanitation scheme”, the exemption applies.

Source: www.rechtspraak.nl

Author: Joyce Westerveld, VAT Advisor at RED

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