ECJ Case C-288/22 (Administration de l’Enregistrement, des Domaines and de la TVA) – Judgment – Member Board of Directors is not a taxable if not acting independently

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.

Context: Reference for a preliminary ruling – Value added tax – Directive 2006/112/EU – Taxable transactions – Taxable person – Concept of an independent economic activity – Typological approach – Activities of a member of a board of directors of a legal person – Principle of neutrality of legal form

Article in the EU VAT Directive

Article 9 of the EU VAT Directive 2006/112/EC.

Article 9 (Taxable person)
1. ‘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.
2. In addition to the persons referred to in paragraph 1, any person who, on an occasional basis, supplies a new means of transport, which is dispatched or transported to the customer by the vendor or the customer, or on behalf of the vendor or the customer, to a destination outside the territory of a Member State but within the territory of the Community, shall be regarded as a taxable person.

Facts

The private individual, TP, is a member of the board of directors of a number of public limited companies incorporated under Luxembourg law, namely a bank established in
Luxembourg, a holding company belonging to a logistics group listed on the Frankfurt stock exchange, and two holding companies belonging to a pharmaceuticals group listed on the Paris stock exchange.
As a member of those boards, he takes part in decisions concerning the accounts, risk management policy and the strategy to be followed by the group in question, and in developing proposals to be put to shareholders’ meetings. The day-to-day management of the first two companies is carried out by an executive committee made up of the chief
executive officers or executive directors. The business activities of the other two companies do not require an executive committee.
The Luxembourg tax authorities raised a VAT assessment to TP for the ‘director fees’ he had charged. The tax authorities argued that a company director independently carries out an economic activity and thus does not “escape VAT”.
TP argued that a member of a board of directors does not carry out his or her activity independently, but as a member of a collective organ which represents the legal person.
The AG, in its opinion, considered that in order to determine whether an activity is carried out independently, ‘it is necessary to check whether the person concerned performs his 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’ (referral to case C-420/18). The key questions that must be answerred are the independence and liability of the board member.

Questions

Is a natural person who is a member of the board of directors of a public limited company incorporated under Luxembourg law carrying out an “economic activity” within the meaning of Article 9 of the EU VAT Directive, and more specifically, are percentage fees received by that person to be regarded as remuneration paid in return for services provided to that company?

Is a natural person who is a member of the board of directors of a public limited company incorporated under Luxembourg law carrying out his or her activity “independently”, within the meaning of Articles 9 and 10 of the EU VAT Directive?

AG Opinion (see HERE)

1. Article 9(1) of Directive of the EU VAT Directive, read in conjunction with Article 10 thereof, must be interpreted as meaning that the existence of an independent economic activity must be determined by means of a typological comparison. The decisive factor in that regard is whether, in the context of the necessary overall assessment, the person concerned, as a typical taxable person does, bears an economic risk personally and acts on his own economic initiative, which it is for the referring court to ascertain.

2. In that regard, it follows from the principle of neutrality of legal form that a natural person who is a member of a body of a company which is required by law and who receives remuneration for that activity as a member of that body cannot in this respect be regarded as carrying out an independent economic activity.

Decision

1) Article 9(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, must be interpreted in the sense that the member of the board of directors of a limited company governed by Luxembourg law carries out an economic activity, within the meaning of this provision, if he provides services for consideration to this company as well as if this activity has a permanent character and is carried out against remuneration whose methods of setting are predictable.

2) The first subparagraph of Article 9(1) of Directive 2006/112 must be interpreted in the sense that the activity of member of the board of directors of a public limited company under Luxembourg law is not exercised independently, within the meaning of this provision, when, despite the fact that this member freely organizes the modalities of execution of his work, he himself receives the emoluments constituting his income, acts in his own name and is not subject to a link of hierarchical subordination, he does not act on his own behalf or under his own responsibility and does not support the economic risk linked to its activity.

Source

Reference to the case in other EU Member States

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