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No contractor status for supervisory board members – Tax court implements ECJ ruling

Supervisory board members are generally considered to be contractors who have to register for VAT and their remuneration is subject to VAT. However, the European Court of Justice (ECJ) has stipulated additional preconditions for a VAT assessment. This has now been reaffirmed by the Cologne tax court (Finanzgericht Köln, FG).

In the recently published ruling of the Cologne FG from 26.11.2020 (case reference: 8 K 2333/18), the judges decided that the remuneration that a supervisory board member at a sports club received for his work was not subject to VAT. An annual budget had been made available to the supervisory board member at the sports club and he was able to use this to buy season tickets and day tickets, reimburse travel costs and purchase fan merchandise. The local tax office viewed this budget as remuneration for his supervisory board work and assessed the amount of VAT that was payable.

The legal action against the VAT assessment was successful because the FG followed the ECJ ruling from 13.6.2019 (case reference: C-420/18). According to that, supervisory board members do not perform their supervisory board work on a freelance basis and, therefore, are not contractors within the meaning of the German VAT Act. Supervisory board members can only act as contractors if they perform their activities in their own names and for their own accounts and if they bear the economic risks associated with performing these activities. In the case in question, these preconditions had not been satisfied. The value added tax assessment that had been issued thus had to be revoked.

Please note: The German fiscal authority’s general approach, to date, of classifying supervisory board members as contractors is likely to become increasingly obsolete in the course of the further implementation of the above-mentioned ECJ ruling and the Federal Fiscal Court’s decision from 27.11.2019 (case reference: V R 23/19).

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