When does a member of a company’s board of directors carry out VAT-taxable activities?

On 21 December 2023, the CJEU handed down a long-awaited judgment on the VAT taxation of board members’ remuneration[1].

The judgment concerned a member of the board of directors of several public limited companies under Luxembourg law who, by virtue of his position, participates, inter alia, in decisions regarding the risk policy, accounting and strategy of the companies and participates in the drafting of proposals presented to shareholders’ meetings. In the opinion of the member of the management board, the remuneration received for the provision of such services should not be subject to VAT. This is because he does not carry out his activities independently but as part of a collective entity.

The Luxembourg tax authorities considered that the remuneration of this member’s lawyer, which he received in 2019 in connection with his role as a member of the board of directors, was subject to VAT. The case eventually reached the CJEU.

CJEU decision

The CJEU ruled that:

• a member of the management board of a public limited company governed by Luxembourg law is engaged in an economic activity within the meaning of Article 9 of the VAT Directive[2] if he supplies services to that company for consideration and if that activity is of a permanent nature and is carried out for remuneration, the determination of which is foreseeable;
• the activities of a member of the board of directors of a public limited company governed by Luxembourg law are not pursued independently within the meaning of that provision where, despite the fact that that member freely organises the way in which he carries out his work, receives himself the benefits constituting his income, acts in his own name and is not subject to a relationship of hierarchical subordination, he does not act in his own name or on his own responsibility and does not bear the economic risk inherent in his activity.

In summary, in the CJEU’s view, the decisive factor is:

• whether the board member bore the economic risk of his or her activities, and
• whether he or she acted in his or her own name, on his or her own account and under his or her own responsibility.

As these prerequisites are not met, the board member of a public limited company does not act as a taxable person for VAT within the meaning of Article 9 of the VAT Directive.

It should be noted that this interpretation reverses the practice followed since 2016 by the Luxembourg administrative authorities[3] that members of the board of directors are taxable for VAT purposes and therefore their remuneration for performing this function is subject to VAT.

Polish tax authorities

The theses resulting from the CJEU judgment are, in principle, in line with the criteria usually applied by the Polish tax authorities. Thus, it should first of all be determined whether, in connection with the services rendered, a member of the management board is liable towards third parties[4]. Therefore, a case-by-case analysis should always be made – if it is indicated in the contract concluded with the company that the service provider bears liability towards third parties in respect of the services provided, the service provider should be deemed to be a VAT payer. It is not sufficient to presume such liability from general legal provisions.

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[1] Judgment of the CJEU of 21 December 2023 in Case C-288/22; TP v Administration de l’enregistrement, des domaines et de la TVA.

[2] Article 9 of EU Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax.

[3] As also enshrined in Circular 781.

[4] So, inter alia, the Supreme Administrative Court in its judgment of 12 July 2022, ref. I FSK 1585/18.