Board members acting independently for VAT purposes? Spain has its say

On February 16 2024, an article by Spanish VAT Services discussed a decision by the Court of Justice of the EU (CJEU) in a case (C-288/22) concerning the VAT treatment of activities carried out by members of boards of directors.

Without going into a detailed analysis, since the content and implications of the court´s decision were explained in the previous article, the case involved a person who acted as a member of the board of directors of several public limited companies incorporated in Luxembourg. As a member of those boards, he takes part in decisions concerning the strategy of those companies, receiving a remuneration for this work. The tax administration considered that this person, acting as a member of boards of directors, shall be regarded as a taxable person carrying out an economic activity within the meaning of Article 9 of the VAT Directive, with his activity subject to VAT.

The case was referred to the CJEU and in the court´s opinion, the activity carried out by the member of the board should be considered an economic activity since it involves a provision of services supplied on a continuing basis and for a foreseeable remuneration.

However, the above is not enough to conclude that the activity would be subject to VAT. To arrive at that conclusion, this economic activity must be carried out independently. To this end, it is necessary to ascertain whether members of a board of directors perform their activities in their own name, on their own behalf, and under their own responsibility, and whether they bear the economic risk of the activity.

After an interesting reasoning, including a very comprehensive opinion of the advocate general, the court concluded that the activity of a member of a board of directors may not be carried out independently even if the board members are free to arrange how they perform their work and receive an income relating to their activity, if, in accordance with the considerations of the case, they do not bear the economic risk linked to their activity.

Spanish tax administration confirms its stance

On April 17 2024, the Spanish tax administration delivered a ruling in a similar case and, as expected, it refers to the CJEU´s decision to some degree.

The case on which the Spanish tax administration pronounced concerned two types of activities. A shareholder and a director of a company supplied professional services to the company. In addition to these professional services, he also provided ‘services’ in his role of director. In the opinion of the Spanish tax administration, the two are different activities and should be observed separately, without the treatment of the former being affected by the treatment of the latter.

As regards the professional services supplied by the shareholder and director of the company, they will be subject to VAT only if the professional is not bound to the organisational structure of the company, if he receives a remuneration for work that is connected to the company´s economic results, and, as mentioned in the previous paragraphs, if he bears the risk of the economic activity.

If the supplier of the service were, in some way, bound by the structure and organisation of the company, it can be concluded that there is an employer-employee relationship, which will imply that the activity cannot be subject to VAT.

On the other hand, any activity carried out in the capacity of a member of a board of directors is to be considered an economic activity for VAT purposes if it is carried out for consideration, in a permanent manner, and in exchange for remuneration. In addition, it will only be considered to be carried out independently and, therefore, subject to VAT if the member of the board of directors acts in their own name and on their behalf, under their own responsibility, and bears the economic risk of the activity.

In this sense, the Spanish domestic regulations consider that the liability of persons who have the status of members of the board of directors will be enforceable in relation to the damage they cause, as long as there has been fraud or negligence.

Therefore, the Spanish regulation supports the CJEU´s conclusions, determining that, in principle, the member of the board does not bear the economic risk linked to their own activity, and it is the company itself that must face the negative consequences of the decisions adopted by the board of directors, provided that the decisions adopted are not contrary to the law or the company´s by-laws.

This type of activity has always been controversial, generating recurrent uncertainty since the line between taxation and non-taxation for VAT purposes on the activities of board members was very fine, and sometimes difficult to determine. The CJEU´s decision, together with the position taken by the Spanish administration, sheds light on a complex issue – something that is always welcome.

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