The Author of the Article
Cross-Border Teams: A Growing VAT Challenge
International non-profit associations increasingly rely on cross-border teams. General Secretaries, membership managers and other key personnel often work remotely from different countries, while board meetings are frequently held online.
From a VAT perspective, the presence of personnel and technical resources in different jurisdictions may, depending on the circumstances, give rise to a VAT fixed establishment. Tax authorities will generally assess whether the organisation has a sufficient degree of permanence and an appropriate structure in terms of human and technical resources to receive and/or provide services from that location.
The key factor is therefore not simply the presence of employees abroad, but whether the association has sufficient resources in another jurisdiction to receive or provide services. This could potentially give rise to significant VAT consequences.
Key VAT Risks to Consider
Where a VAT fixed establishment is deemed to exist, the consequences can be significant. An association may face:
- additional VAT registration, invoicing and reporting obligations in the relevant jurisdiction;
- retrospective VAT assessments, together with interest and penalties where the tax authorities consider that a VAT registration should have been in place;
- overlapping VAT claims from different jurisdictions, potentially leading to double taxation; and
- supplies may become subject to local VAT, since the organisation would be considered as resident in the relevant jurisdiction.
These consequences can be particularly problematic for organisations that are not entitled to fully recover input VAT.
Other Tax Implications
International organisations should also consider the potential corporate income tax implications of their international operating model. Unlike VAT, where the focus is on the existence of sufficient human and technical resources to receive or provide services, corporate income tax rules generally focus on where the organisation is effectively managed and where key strategic decisions are taken.
Depending on the functions exercised by senior management and employees located abroad, tax authorities may question not only the organisation's tax residence but also whether a permanent establishment exists in another jurisdiction, potentially giving rise to additional corporate income tax obligations, as the profits attributable to the permanent establishment may become taxable in that jurisdiction.
The expert’s eye
The increasing use of cross-border teams does not automatically create a VAT fixed establishment.
However, as international non-profit associations continue to embrace remote working and increasingly rely on cross-border teams, it is becoming increasingly important to assess whether the organisation's human
and technical resources in another jurisdiction could give rise to a VAT fixed establishment.
International growth should not come with unexpected VAT risks. If your organisation operates through cross-border teams, a proactive review of your structure can help ensure that your VAT position is in line with your operational model.