All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Luxembourg: Crowdfunding in the EU: VAT consequences

Certain businesses are increasingly relying on "reward-based crowdfunding" as another method to seek additional sources of capital injections, where the business may offer tangible or intangible assets, services, shares or participation in future profits to persons who engage in the funding campaign.

glohr.jpg
lambion.jpg

Raphaël Glohr

Michel Lambion

The VAT consequences of these activities has become an issue: is reward-based crowdfunding an exempt financial service or a taxable supply where persons providing funds are offered goods or services in return for their investment, and thus giving rise to VAT registration/compliance obligations?

The 2015 guidelines issued by the European Union (EU) VAT Committee provide a useful reminder that the "participative" nature of crowdfunding does not make it exempt from the normal VAT rules.

The VAT Committee, a consultative body consisting of representatives from the VAT authorities of the 28 EU member states, issued guidelines on crowdfunding in November 2015. Although not binding, the guidelines have been discussed and agreed upon by representatives of the national administrations and, therefore, are useful as a high-level guide for businesses. Most of the guidelines discussed below have been adopted unanimously (areas where unanimous agreement was not reached are specified).

VAT guidelines

The VAT guidelines state that a good or service received by a contributor as a reward (i.e. in exchange for the contribution to the crowdfunding campaign) is subject to VAT when: (i) there is a direct link between the reward and the contribution; and (ii) the person that provides the reward is a VAT taxable person, i.e. a person performing economic activities on a regular basis.

The taxable basis on which VAT should be calculated, in principle, would be the purchase or cost price of the reward. This taxable basis may be lower than the market value of the reward, and could be lower than the value of the contribution itself. It was 'almost unanimously' (i.e. by more than 24 member states) agreed by the VAT committee that a reward of a negligible value, or a value wholly unconnected to the value of the contribution, could be viewed as a donation, which falls outside the scope of VAT. The same treatment is applied to goods given as samples or gifts of low value.

Rewards in the form of intellectual property rights fall within the scope of VAT, but those consisting of securities are VAT exempt.

Finally, where the contribution is an interest-bearing loan, the interest payments are exempt from VAT.

VAT status of crowdfunding platforms

Crowdfunding platforms are deemed to perform an economic activity when services are rendered to taxable persons. The VAT committee 'almost unanimously' agreed that such supplies should be subject to VAT unless the supplies consist of exempt financial services.

The fact that the guidelines specifically refer to services rendered to a "taxable person" seems to imply that a platform supplying services to only non-taxable persons would not be considered to perform an economic activity. From a general EU VAT perspective, however, the status of the recipient of a service should be irrelevant to the characterisation of the nature of that service. It also is surprising to note that, while all member states consider that a platform that renders services is performing an economic activity, a few member states consider that these services should not be subject to VAT.

Business considerations

Persons involved in crowdfunding activities should consider their VAT positions and associated administrative obligations (e.g. VAT registration, filing VAT returns, issuing valid VAT invoices, etc.).

In particular, where rewards are granted by fund owners, it will be important to determine the taxable basis and VAT rate to be applied. This exercise will be more complex in cross-border situations, but it is necessary to avoid unintended and costly consequences.

Raphaël Glohr (rglohr@deloitte.lu) and Michel Lambion (milambion@deloitte.lu)

Deloitte Luxembourg

Tel: +352 45145 2665 and +352 45145 3993

Website: www.deloitte.lu

More from across our site

The Indian Union Budget made some significant changes that will affect taxpayers, as Ranjeet Mahtani, Saurabh Shah, and Meetika Baghel of Dhruva Advisors explain.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
Businesses need to improve on data management to ensure tax departments become much more integrated, according to Microsoft’s chief digital officer at a KPMG event.
Businesses must ensure any alternative benchmark rate is included in their TP studies and approved by tax authorities, as Libor for the US ends in exactly a year.
Tax directors warn that a lack of adequate planning for VAT rule changes could leave businesses exposed to regulatory errors and costly fines.
Tax professionals have urged suppliers of goods from Great Britain to Northern Ireland to pause any plans to restructure their supply chains following the NI Protocol Bill.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree