The EU’s VAT Committee has published its review of the liability to VAT of crowdfunding activities. The Committee stated that “where platforms provide services free of charge40 they remain outside the scope of application of the VAT Directive”. But where services generate a fee, such services are subject to VAT.
The comments were part of a broader document on the “Sharing Economy” generated at a meeting of the VAT Committee in September. The group explained their discussion;
“New sharing economy platforms have grown rapidly over the recent years and today they have an important impact on the activities to which they relate. Some of these platforms are currently valued at over EUR 25 billion. In less than five years the key sharing sectors1 have reached a global revenue level of around EUR 14 billion and it is foreseen that they could potentially reach EUR 300 billion by 2025.”
While the recommendations are not binding on EU member states, the conclusions of the Committee are considered highly influential, and are typically followed by national tax authorities’.
Richard Asquith, VP Global Tax at tax compliance firm Avalara, explained the risk;
“The VAT Committee’s conclusion may spring a tax liability on unprepared crowdfunding projects and make the economics far less attractive. Many projects will now have to register for VAT to process and report the liabilities.”
The EC referred the VAT issue to the Committee in April. At that time, the Committee stated
earlier initiatives all focused on studying how crowdfunding would fit into the wider financial ecosystem and the existing regulatory framework, particularly taking into account issues related to transparency and investor’s protection. However, the VAT implications of crowdfunding had been overlooked so far.
Some key conclusions of the VAT Committee were:
- Goods or services promised to investors in exchange for their funds in crowdfunding campaigns are liable to VAT as a taxable transaction
- VAT due on funding will be payable to the tax authorities when the cash is received
- Where investors receive shares, bonds or debt in the campaign, there is no VAT due – although a participation in future profits from intellectual property rights will be subject to VAT
- The services of crowdfunding platforms that provide fundraising services to entrepreneurs are within the scope of VAT