Is an independent director of a board of directors required to pay VAT? This has been the subject of a dispute between one of the founders of the law firm Elvinger Hoss Prussen, , and the Registration Duties, Estates and VAT Authority (AED) since 2019. On Thursday 21 December, the European Court of Justice, hearing the case referred by the Luxembourg District Court (Tribunal d’arrondissement de Luxembourg), clarified how the VAT Directive should be understood in relation to this activity.
“Article 9(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the member of the board of directors of a public limited company under Luxembourg law carries out an economic activity, within the meaning of that provision, where he or she supplies services to that company for consideration provided that that activity is effected on a continuing basis and for a remuneration for which the procedures for fixing that amount are foreseeable.”
The judgement noted that “fees are awarded by the general meeting of shareholders in the form of a lump sum payment that is paid even where the company suffers losses or is being wound up.”
The court ruled that the relevant article in the directive “must be interpreted as meaning that the activity of a member of the board of directors of a public limited company under Luxembourg law is not carried out independently, within the meaning of that provision, where – despite the fact that that member is free to arrange how he or she performs their work, receives the emoluments making up his or her income, acts in his or her own name and is not subject to an employer-employee relationship – he or she does not act on their own behalf or under their own responsibility and does not bear the economic risk linked to their activity.”
The case was : Administration de l’Enregistrement, des Domaines and de la TVA (TVA - Membre d’un conseil d’administration).
Originally published in French by and translated and edited for Delano