Luxembourg Tax Alert 2023-09

AG Kokott opinion released in the Luxembourg TP case

AG Kokott opinion released in the Luxembourg TP case

On 13th July 2023, AG Kokott released her opinion in case C-288/22 on the VAT treatment of activities carried out by a member of a board of directors of a legal person.

Reminder of facts

TP is a lawyer, member of the board of directors of several public limited companies, i.e. a bank and several holding companies (listed on various stock exchanges).

As member of the board, he takes part in decisions concerning the accounts, risk management policies and strategy. He also develops proposals to be put to shareholders’ meetings. According to TP, the Luxembourg Law on commercial companies foresees that his activity does not come with any personal obligations; he can be personally liable only where he exceeds the limits of acceptable conduct such as a wrongful act.

TP is of the opinion that his remuneration should not be subject to VAT as he does not carry out his activity independently, but as a member of a collegiate body. However, the Administration de l’Enregistrement, des Domaines et de la TVA (VAT authorities) applied VAT on the directors’ fees received by TP in 2019. They are of the opinion that the decision in IO1 is not applicable in TP’s situation.

The Tribunal d’arrondissement is therefore referring questions to the Court of Justice of the European Union (CJEU) as to the treatment of this activity and whether this should be subject to VAT.


IO, C-420/18, IO v Inspecteur van de rijksbelastingdienst (activity as a member of the Supervisory Board of a foundation)

Is TP considered as independent taxable person for VAT purposes?

In her opinion, AG Kokott assesses whether TP might be considered as an independent taxable person based on his activity as member of a board of directors.

Important points in AG Kokott’s opinion are emphasized below:

  • To determine whether an economic activity is carried out by a taxable person independently, it is important to assess the economic risk born by the taxable person. In the case of TP, he receives a remuneration as part of a collective body. As such, he does not appear to bear any personal liability. Only the body for which he is executing his duties should be liable. In this respect, any liability for gross negligence (which would exist in case of any standard employee/employer relationship) or the fact that the body is liable for the company’s tax debts should not be relevant
  • Secondly, the activities as carried out by TP (for the benefit of a body) cannot be carried out towards any other parties. TP did not act on his own initiative, and he was specifically appointed as part of the body in question. Therefore, TP’s activities constitute a part of the body for which he is active. In this respect, his level of remuneration is not dependent on the workload involved, nor on the outcome of any financial negotiation with the recipient of the service. This should be an indicator that TP is not carrying out any independent economic activity. The fact that TP’s remuneration might vary according to the results of the company’s performance does not alter this point of view neither, in the same way as the variable remuneration of an employee does not make him/her a taxable person
  • Finally, AG Kokott concludes that applying VAT to the remuneration of a board of directors where the body is a legal requirement of the taxable person would be against the principle of neutrality of legal form. Indeed, this could create distortion of competition in case TP’s activities would be treated differently from the ones of other taxable persons where there is no such legal requirement

AG Kokott is therefore of the opinion that the activity carried out by TP does not fulfill the conditions for him to be considered as an independent taxable person. She however leaves room to the Tribunal d’arrondissement for determining concretely the existence of an economic activity carried out independently based on TP’s specific case. 

Additional considerations?

Since 30 September 2016, Circular 781 is explicitly confirming the application of the VAT on directors’ fees, where independent persons who supply director services against consideration should be considered as carrying out an economic activity subject to VAT.

The concept of “independence” is of utmost importance – and as explained above, AG Kokott seems to take some distance with the fact that directors’ activities should be considered as independent and subject to VAT.

It remains to be seen whether this position will be confirmed in the CJEU’s decision and further by the Luxembourg tribunal d’arrondissement. Moreover, potential mitigations brought in the decision as well as its consequences should be thoroughly examined. In any case, if confirmed, this decision would constitute an important change in jurisprudence as to the VAT treatment of directors’ services.

Your team of VAT experts stay at your disposal for any questions you may have in respect with the above.