CJEU: Is being a board member of a public limited company an economic activity?

In the present case, the CJEU dealt with whether a member of the board of directors was a taxable person and their remuneration for exercising the office was therefore subject to output VAT. The remuneration consisted of two parts - a fixed remuneration and a share in profit whose amount was decided by the general meeting. The person concerned was also a member of the board of directors of other public limited companies incorporated under the law of Luxembourg and performed multiple tasks in that capacity.

The Luxembourg tax authorities had referred preliminary questions to the CJEU as to whether this activity constituted an economic activity and whether it had been carried out independently within the meaning of the VAT Directive.

The CJEU assessed whether the remuneration fulfilled the characteristics of a consideration - in particular, whether there was a direct link between the remuneration and the person's activities and whether these were regular (both the activities and the remuneration). The CJEU found that the fixed part of the remuneration fulfilled the characteristics of a consideration. As for the share in profit, it would have to be clear whether the remuneration would be paid even if the company did not make a profit. To determine whether the activity was an independent economic activity, the CJEU noted that it is necessary to determine whether there is a relationship of subordination in the performance of the activity (whether the board member performs the activity in their own name, on their own behalf and responsibility, and whether they bear any economic risk).

According to the CJEU, there was no hierarchical subordination relationship in the situation under review. To assess 'acting in their own name, on their own behalf and responsibility', the CJEU referred to the division of responsibilities between the members of the board of directors on the one hand, and the company on the other hand under Luxembourg law, which expressly prohibits a member of the board of directors from assuming personal liability for the debts of the company. If a director does not act under their own responsibility, they instead act on behalf of the board of directors and, in general, on behalf of the company, while they must act in the company’s best interests. A board member providing their expertise and know-how to the board of directors does not bear the economic risk associated with their own activity – the Company itself will have to face the possible negative consequences of decisions taken by the board of directors and therefore bears the economic risk arising from the activities of the board members. The fact that a board member’s remuneration depends on the company's profit has no effect on this, as the participation in the company's profits cannot be equated with assuming the company's risk of profit and loss. 

According to the CJEU, the activities of the Luxembourgian member of the board of directors of public limited liability companies do not constitute an independent economic activity as long as the member does not act on their own behalf and responsibility and does not bear the economic risk arising from their activities. This activity is therefore not subject to VAT.