VAT treatment of members of societies finally clarified?

Effective 1 July 2017, special provisions of the VAT Act concerning societies were cancelled. Before the amendment, supplies effected between members of societies were not considered for VAT purposes. Under the new regulation, however, each member of a society shall follow the generally applicable provisions of the VAT Act on an individual basis. The transition period during which members of societies that existed before the amendment could still apply the old regulation expired at the end of December 2018.

Originally, the tax advisors’ paper aimed to confirm the VAT treatment of another common situation when the society’s members’ share in the society’s joint activity is determined based on variable criteria, which means, for instance, that their final share in profit only becomes known at the end of a calendar year. The tax advisors’ opinion was that the subsequent adjustment to reflect the final share in profit was an adjustment to the tax base under Section 42, while such adjustments are generally covered by regular VAT returns. However, the GFD and the tax advisors did not agree on this issue, meaning that taxpayers will remain uncertain as to how to proceed in such situations.

Nevertheless, consensus was reached on the other issue covered by the paper: the specification of supplies provided by individual members from a VAT perspective. In practice, it is often one member who acts vis-à-vis third parties, acting in their own name and for their own account (as regards their share in the joint activity), and in their own name and for the other members’ account (as regards the other members’ share in the joint activity). Such a situation is just one of the possibilities of acting in the society’s joint affairs, as the GFD noted in their information on the application of VAT to a society’s members valid from 1 July 2017.

The GFD thus confirmed that in the case in question, the scope of supply shall remain unchanged, meaning that the same supply shall be given in the tax documents (invoices) issued to third parties by the one society’s member issuing the invoice as well as in the tax documents then issued between the society’s members. Similarly, an identical supply should also be provided in tax documents in situations where individual members act vis-à-vis a customer in their own name and for their own account. To illustrate: if the contracted supply is construction work, all society’s members should issue invoices for construction work, while the rules stipulated by the VAT Act shall apply to the individual supplies on a case by case basis (for instance: when assessing the limits for a local reverse charge for supplies between members, their share in the joint activity should be considered).