An international non-profit association (AISBL) has as its main purpose the study of piracy of audiovisual works, copyright and other protection of audiovisual works and in addition, as a subsidiary purpose, the promotion of the interests of its members. In the context of its activities, it uses the services of a commercial company which, in particular, performs the tasks of general secretariat.

The association considers that its VAT status is that of a taxable person with a right of deduction on the basis of an individual decision taken by the VAT administration for another INPO carrying out an activity similar to its own but in the music sector.

After a VAT audit carried out on the premises of the association, different positions were expressed both by the official in charge of the file and by the Brussels I Regional Directorate and the central administration, finally leading to the conclusion that the AISBL has the status of an exempt taxable person with no right to deduct in accordance with Article 44, §2, 11° of the VAT Code as long as its main activity is of a "trade union" nature (lobbying).

The dispute is brought before the Court of First Instance of Brussels.

The court agrees with the VAT administration and considers that the INPO is an exempt taxable person without the right to deduct for the following main reasons:

1. Concerning the divergent positions taken by the VAT administration:

An individual decision concerning another AISBL (carrying out a similar activity) cannot create a legitimate expectation that it corresponded to a well-established administrative policy towards that AISBL and that it should necessarily benefit from the same decision.

2. Concerning the nature of the INPO's activities:

• The INPO described its activities in its declaration of commencement of activities (form 604A) as follows: "study of copyright law, legislation in the audiovisual field, lobbying and representation before the European institutions";

• The INPO is accredited as a "lobbyist" before the European Parliament;

• The INPO presents itself in a press review available on its website and in publications intended for the European Parliament and the public as an international association whose aim is to promote the interests of European film producers and distributors;

• The INPO presents itself in a brochure as a professional association whose aim is to promote the interests of the European film industry by encouraging the European institutions to put in place a regulatory environment that will ensure the development and competitiveness of the industry.

For the judge, these documents establish that the association’s main activity is the promotion of the collective interests of its members and the representation of these interests vis-à-vis the decision-making centres, essentially the European institutions.

The division of activities into time units on the basis of the timesheet that the association drew up after the fact does not make it possible to demonstrate with sufficient legal force that the defence of the collective interests of its members is an ancillary activity. Indeed, not only is the time allocated to the various services listed in this document not easily verifiable, but also the ancillary nature of the lobbying activity is in contradiction with the nature of the services invoiced to it by the Secretary General (since most of the remuneration due for the services rendered by the latter relates to the lobbying position).

Disputes between International associations and the VAT administration concerning the application or not of article 44, §2, 11° of the VAT Code (lobbying) are becoming increasingly frequent. While in the past certain agreements could still be concluded at the administrative level (e.g. 80/20 distribution key leading to a partial right of deduction), this no longer seems possible.

Disputes brought before the courts are therefore bound to increase in the very near future.

In this context, the main question to be decided by the judge will be to determine the nature of the INPO's main activity. Only if the INPO can show that its main activity does not consist in representing the collective interests of its members but in carrying out studies and research for the benefit of its members will it have a right to deduct.

INPO that feel they are being targeted are therefore well advised to document themselves well in order to be able to provide this proof in due course.

Source: Brussels Court of First Instance of 6 March 2008. See also ECJ, The Institute of Motor Industry, C-149/97.