The judgment of the Court of Justice of the European Union (Case C 288/22) of 21 December 2023 answers two questions for preliminary rulings on the interpretation of certain articles of Council Directive 2006/112/EC in relation to the common system of value added tax (VAT). This case involves a dispute over the VAT obligations of a board member of various Luxembourg-based public limited companies, focusing on the concepts of ‘economic activity’ (first question) and ‘independence’ (second question) in the context of the VAT directives.
The first of the questions referred is answered in the sense that the activity of a director of a commercial company constitutes an ‘economic activity’ since ‘the first subparagraph of Article 9(1) of the VAT Directive must be interpreted as meaning that a member of the board of directors of a Luxembourg public limited company is engaged in an economic activity, for the purposes of that provision, if he supplies services to that company for consideration and if that activity is of a permanent nature and is carried out in return for remuneration the detailed rules for the determination of which are foreseeable. “
The second of the questions raised revolves around whether the economic activity carried out by the director is of an “independent” nature in relation to the company; given that if this were the case, such economic activity provided by an independent agent would be characterised as a supply of services for the purposes of being subject to VAT. However, the CJEU considers that ‘the first subparagraph of Article 9(1) of the VAT Directive must be interpreted as meaning that the activity of a member of the board of directors of a Luxembourg public limited company is not carried out on an independent basis for the purposes of that provision if, although that member freely organises the arrangements for the performance of his work, receives himself the remuneration which constitutes his income, acts in his own name and is not subject to a relationship of hierarchical subordination, does not act on his own account or on his own responsibility and does not bear the economic risk associated with his activity. “
In short, the activity of a company director has the character of “economic activity”, although the provision of his services is not subject to VAT, since the director does not act on his own account (but on behalf of the company), and does not bear the economic risk linked to his activity.
However, the interpretation could be reversed in the case (i) where the director has deliberative and decision-making functions, and not only representative functions, in which case he should be considered as acting on his own account and independently; and in the case (ii) where the director’s remuneration is linked to the company’s results, or the economic results that his decisions have brought to the company.