Summary of ECJ C-288/22: VAT Status of Board Members Clarified

On 21 December 2023 the European Court of Justice made a decision in case C-288/22 (Administration de l’Enregistrement, des Domaines and de la TVA) regarding the status of a member of the board of a public limited company. The question was if this board member is a taxable person or not.

Articles in the EU VAT Directive 2006/112/EC discussed

Article 9(1) of that directive provides:

‘“Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.’

Article 10 of that directive is worded as follows:

‘The condition in Article 9(1) that the economic activity be conducted “independently” shall exclude employed and other persons from VAT in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationship of employer and employee as regards working conditions, remuneration and the employer’s liability.’

Facts

TP is a member of the board of directors of multiple public limited companies incorporated under Luxembourg law.
His activities include receiving reports from senior managers, discussing strategic proposals, choosing operational managers, and addressing company accounts and risks.
He also participates in decision-making at the board level and is involved in determining company strategy and risk policy.
TP received fees as a percentage of the profits achieved by the companies. He contested a tax assessment, arguing that his role as a board member does not constitute an economic activity for VAT purposes.
The tax authority rejected his claim, stating that board members carry out an independent economic activity and are therefore subject to VAT.
The referring court seeks clarification on whether TP’s activities constitute an economic activity and whether he operates independently under VAT Directive.

Questions

1) Is a natural person who is a board member of a public limited company incorporated under Luxembourg law considered to be conducting an ‘economic’ activity under Article 9 of the VAT Directive? Are percentage fees received by that person considered as remuneration for services provided to the company?
2) Is a natural person who is a board member of a public limited company incorporated under Luxembourg law considered to be carrying out their activity “independently” under Articles 9 and 10 of the VAT Directive?

Argumentation Court

First question

The referring court asks whether a member of the board of directors of a public limited company under Luxembourg law is carrying out an economic activity, within the meaning of Article 9(1) of the VAT Directive.
The concept of ‘economic activity’ is defined as covering any activity of producers, traders, or persons supplying services. An activity can be regarded as an economic activity only where it corresponds to one of the chargeable events defined in the VAT Directive.
The Court may provide clarification to give the national court guidance in its interpretation.
The supply of services must have a direct link with the consideration actually received by the taxable person.
The remuneration received by the provider of the service must constitute the actual consideration for the service supplied to the recipient.
The remuneration must remain reasonable in relation to the service supplied, and the price paid for an economic transaction is irrelevant for establishing whether it was a transaction effected ‘for consideration’.

Second question

The referring court is asking whether the activity of a member of the board of directors of a public limited company under Luxembourg law is carried out independently, within the meaning of the VAT Directive.
The court clarifies that the assessment should be based on Article 9 of the VAT Directive, which requires determining whether there is an employer-employee relationship in the pursuit of the activity.
It is necessary to check whether the person performs the activities in his own name, on his own behalf, and under his own responsibility, and whether he bears the economic risk associated with carrying out those activities.
The court also emphasizes that the allocation of responsibilities between the members of the board of directors and the company is a relevant factor in determining whether such members act under their own responsibility.

Decision

The Court ruled that a member of the board of directors of a public limited company in Luxembourg is considered to carry out an economic activity and supply services to the company for consideration if the activity is continuous and for a foreseeable remuneration.
However, the activity is not considered independent if the member does not act on their own behalf, under their own responsibility, or bear the economic risk linked to their activity.

Source