In Belgium, there is a collection of international non-profit associations (AISBL) that revolve around the European Commission. These associations, which bring together the main European or global players in a given industrial sector (chemicals, food industry, etc.), provide a number of services to their members in return for the statutory membership fees: promotion of the sector, provision of information, networking, newsletters on technical subjects, common positions, studies, surveys, sectoral reports, etc.
The associations also have the social objective of representing and defending the collective interests of their members vis-à-vis third parties, in particular the European authorities. The aim is to influence the policy-making and decision-making processes of public authorities. In this case, they may organise meetings to prepare negotiations with the bodies concerned, to inform members of their follow-up, etc. They are usually registered in the European Commission's register of lobbyists.
What is the VAT problem linked to lobbying?
Article 44 of the VAT Code exempts from VAT services of a trade union nature which are provided by international associations to their members in return for payment of their statutory membership fee. This VAT exemption is applicable as long as the following conditions are met:
- The association must pursue a goal of a trade union nature
- The services must be provided by a non-profit organisation
- The services must be rendered in the collective interest of the members
- The services must be financed by statutory contributions.
Provided that these conditions are met, the services provided by the international association to its members in return for the membership fee will be exempt from VAT. The association will therefore be treated as an exempt taxable person for this activity and will not be able to recover VAT on related expenses.
Our experts have been advising many international associations for more than 20 years on their taxation and in particular on VAT. Our strong experience on the subject teaches us that what is traditionally the subject of a very lively discussion during a tax audit concerns the very definition of lobbying. The boundary between promoting a sector on the one hand and defending and representing it on the other is not always easy to determine and is therefore a source of conflict with the tax authorities.
What does the tax authorities say?
The Belgian tax administration published a rather interesting opinion on the subject in an administrative circular a few years ago. We commented on this opinion in one of our previous VAT newsletters.
What does the Court of Justice say?
VAT concepts are, however, autonomous notions of Community law which must be given a uniform interpretation in each European country. The VAT Directive has direct effect, which means that the taxpayer can invoke it directly even if this contravenes a contrary national provision.
In its famous judgment of 12 November 1998 (C-149/97), the Court of Justice considered that the expression "body pursuing objectives of a trade union nature" means an organisation whose main objective is the defence of the collective interests of its members and the representation of those members vis-à-vis third parties concerned, including public authorities.
For the Court of Justice, two cumulative conditions are therefore required to be considered as a body of a trade union nature: the main objective must be the defence of the collective interests of its members AND the representation of those interests.
The advice of a VAT expert?
International associations are generally heavy consumers of a large number of services (consultants, lawyers, etc.) and therefore bear VAT on their expenses.
If your association's purpose is to represent and defend the interests of its members and it deducts VAT on all its expenses, then it is certain that the question of its VAT status will be put on the table during a tax audit. The tax authorities will attempt to reclassify the VAT status from that of an ordinary taxable person to that of an exempt taxable person and thus refuse to deduct VAT on expenses. It will also take advantage of the opportunity to apply an administrative fine of 10% on the amount of VAT wrongly deducted over the last three years as well as interest for late payment of 9.6% per year.
It is therefore in the interest of the international association to prepare its input VAT file very carefully in order to be able to demonstrate, through adequate documents (cost structure, Time sheets, activity reports, etc.) and to the satisfaction of the administration, its main purpose.