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VAT liability for supervisory board remuneration

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Dr Gottfried Breuninger

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Dr Magnus Mueller

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Dr Heike Weber

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Christina Habermayr

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Tim Spranger

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09 November 2021

The VAT handling of the settlement of remunerations for Supervisory Board members has been changed. Consequences resulting from these changes must be implemented by 1 January 2022 at the latest. Companies must check the legal situation and adjust their processes if necessary.

For decades, the activity performed by a member of the supervisory board was regarded as being on a self-employed basis and the remuneration was classified as being subject to VAT. In 2019, however, the European Court of Justice (ECJ) decided the following:

  • Members of a supervisory board do not qualify per se as entrepreneurs (Unternehmer) under German VAT law. 
  • Rather, entrepreneurial activity can only be assumed if the supervisory board member carries out the activity on a self-employed basis. 
  • This is only the case if the person in question bears the economic risk (as this is typical for an activity performed on a self-employed basis). 
  • There is no economic risk if supervisory board members receive a fixed remuneration for their activity that neither depends on the attendance of meetings nor the hours worked.

The German Federal Fiscal Court has adapted the ECJ ruling and has decided – contrary to its previous rulings – that members of a supervisory board do not work on a self-employed basis and therefore do not qualify as entrepreneurs in the sense of German VAT law if they do not bear any remuneration risk due to the fact that they receive a non-variable fixed remuneration.

Read more in our client bulletin regarding the consequences in practice, the need for action from a tax and corporate law perspective and learn how Allen & Overy can support you.