On 13 June 2019, the ECJ published its judgment in the IO vs Inspecteur van de rijksbelastiengsdienst case (C-420/18) and clarified that the member of a foundation’s supervisory board does not qualify as a VAT taxable person as he does not independently exercise an economic activity. The foundation’s main activity was to provide permanent housing to people in need. IO was a member of the foundation’s supervisory board and received an annual lump sum remuneration of EUR 14,912. As such, he submitted a VAT return, which was subsequently contested.
In the appeal proceedings, the ‘s-Hertogenbosch Court (Gerechtshof ’s-Hertogenbosch) referred a preliminary ruling to the ECJ asking whether the member of a foundation’s supervisory board qualifies as an entrepreneur carrying out an independent economic activity within the meaning of Articles 9 and 10 of the VAT Directive (EU) 2006/112 and was consequently subject to VAT. The ECJ confirmed that generally, the members of a foundation’s supervisory board are on an independent mandate. The board member’s role is to control the board’s strategy as well as the foundation’s routine business. As such, the members are not hierarchically subordinated to the supervisory or executive board of the foundation. Nonetheless, such activities must be carried out independently by the members, meaning that they cannot be subordinated to the foundation. For this purpose, the board members incur economic risks, act under their own name, on their own account and incur responsibility for any damage caused.
When carrying out his activities, IO however did not fulfil any of those conditions. He did not incur any economic risks as his annual income was neither dependent on his participation in regular meetings nor on a specific number of hours worked at the foundation. IO acted solely under the name and on the account and responsibility of the supervisory board and did not incur any responsibility for damages caused on his behalf. In doing so, IO did not have any particular influence on his own income or expenses. Furthermore, any negligence on behalf of IO did not automatically have, as a consequence, his resignation, but was subject to the commencement of a specific internal procedure. As such, the ECJ decided that IO, as member of the foundation’s supervisory board, cannot be considered an entrepreneur independently carrying out an economic activity. Indeed, he was found to be in a subordinate relationship to the foundation due to not incurring any entrepreneurial risks himself. As a result, his remuneration should not have been subject to VAT.