On December 21, 2023, the European Court of Justice (“ECJ”) issued its long-awaited ruling in the case C288/22 “TP” on the VAT treatment of director fees.
From a Luxembourg VAT standpoint, directors (natural persons) have been treated as VAT taxable persons since January 1, 2017 by effect of the Circular n°781 of September 30, 2016. Following its entry into force, “TP”, a lawyer with several mandates as a board member of some public limited companies in Luxembourg, was ex-officio subjected to VAT on the percentage fees he received.
On the several questions that the Luxembourg District Court referred, the ECJ answered that:
- A member of the board of directors of a public limited company carries out an economic activity, within the meaning of the 2006/112EC Directive, where he or she supplies services for a consideration, provided that that activity is realised on a continuing basis and against a foreseeable and definable remuneration;
- However, this activity is not performed independently as the board member does not act on their own behalf or under their own responsibility and does not bear the economic risk linked to their activity despite the freedom of each board member to arrange his or her work, the receipt of emoluments making up his income and the lack of employer-employee relationship.
A taxable person being defined as “any person who, independently and on a regular basis, in the course of a general economic activity, carries out transactions, whatever the purpose, results or place of that activity”, a director does not fulfill all the conditions required in order to qualify as a VAT taxable person.
In the aftermath, the VAT authorities were quick to react on the matter:
- The Circular Letter n°781-1 of December 22, 2023 suspends the effects of the 2016 Circular until the decision of the Luxembourg District Court;
- The VAT authorities have also issued a flash news confirming that they will ensure a “non-bureaucratic regularisation”, up to the statute of limitation period.
While this is certainly good news for the local market in Luxembourg, the practical impact and consequences in terms of regularisation for the directors but also their clients, who were incorrectly charged VAT in the past is still pending and will require some more patience.
Tiberghien lawyers are following these developments closely for you and will keep you informed. In the meantime, do not hesitate to reach out to the authors of this article for assistance in these matters.
