Supervisors have a special role in the tax playing field. In this article, we elaborate on the tax position of supervisors and current options. Here we distinguish between payroll tax on the one hand and VAT on the other.
Payroll tax
First of all, we note that the following laws and regulations are not relevant in the context of payroll tax if supervisors receive only a token fee or merely an actual expense allowance for the work performed. If supervisors are paid more than token compensation for their work, then parties will face tax consequences in terms of payroll taxes.
As of January 1, 2017, the fictitious employment relationship for supervisors was removed from the law, which means that, in principle, parties no longer enter into an employment relationship with each other. As a result, the following options exist with respect to the tax treatment of remuneration to supervisors within payroll tax/income tax. We briefly discuss these options below.
Option 1: no employment (main rule)
Since there is no (fictitious) employment as of January 1, 2017, the compensation paid is paid to the supervisor on a gross basis. The supervisor processes this income as "income from other activities" in the IB tax return. The client is hereby obliged to report the payment to the Tax Office via an IB47 form. In this way, the Tax Office can check whether the income is actually reported by the supervisor in the income tax return.
Option 2: No employment due to self-employment
We also note the possibility that supervisors may be considered as an business owner. This is the case if the supervisor runs an enterprise and performs his duties as a supervisor within that framework. If this is the case, the income must be included as 'profit from business' in the income tax return. In this context, the supervisor has access to various tax
business owner facilities, such as the SME profit exemption, start-up deduction and self-employment deduction. In practice, a supervisor does not easily qualify as an IB business owner. One or two supervisory directorships is insufficient for this.
Option 3: employment (opting-in).
Finally, a choice can be made to pay supervisors through the opting-in arrangement. This creates a voluntary fictitious employment relationship. For this, a joint declaration by the supervisor and client must be submitted to the tax authorities. The advantage is that the supervisor does not have to take action himself in the area of wage and income tax. Payroll taxes and healthcare insurance contributions have already been paid over the remuneration. The disadvantage is that, as a client, you are faced with additional costs in the context of payroll administration. In addition, we note that the opting-in arrangement does not apply to employee insurance. The supervisor must therefore take out independent insurance for unemployment, illness or disability.
Relationship Payroll taxes & VAT
The supervisor's tax qualification for payroll/income tax purposes (choices 1 to 3 above), do not affect the supervisor's VAT obligations.
VAT entrepreneurship supervisors
If a supervisor receives a fee for his/her supervisory activities, then in principle the supervisor qualifies as a VAT business owner. This means, first of all, that a supervisor must qualify as a VAT business owner and charge VAT on the remuneration he/she receives from the educational institution. On the other hand, he/she is entitled to deduct input VAT paid in connection with supervisory activities. As a result of these VAT obligations, the supervisor must periodically file a VAT return and maintain VAT records.
Recent case law
However, on June 13, 2019, the Court of Justice ruled that supervisory directors and similar supervisors are not classified as VAT entrepreneurs under certain conditions. This ruling (which has also been confirmed by the Court of Appeal of 's-Hertogenbosch) shows that for a supervisor to qualify as a VAT business owner, the determining factor is the degree of independence in which the work is performed. If there is a certain degree of subordination to the Supervisory Board and/or the Management Board, the supervisor does not perform the activities independently and therefore there is no question of VAT entrepreneurship. The following circumstances are relevant here:
- The supervisor does not act in his own name, for his own account and responsibility for his supervisory work.
- In the context of income (fixed compensation), expenses and personal liability, the supervisor is not exposed to sufficient business risk.
The Supreme Court in its recent ruling maintains a similar assessment. The Supreme Court decides that the members of the advisory committee do not qualify as VAT entrepreneurs because there is no independently exercised economic activity. This follows from the fact that the members have no individual duties or responsibilities. They perform the work or acts as members of the Objections Advisory Committee and not in their own name, for their own account and/or under their own responsibility.
Impact of case law
Following the judgment of the Court of Justice and the Court of Appeal of 's-Hertogenbosch, we are of the opinion that many supervisors no longer qualify as VAT operators. This means that supervisors no longer have to charge VAT for the supervisory activities they perform. This entails a cost saving for you as an educational institution since, in principle, you are not entitled to deduct the VAT charged. In addition, the supervisor can object to the VAT return(s) already submitted in order to reclaim the wrongfully remitted VAT. We recommend making arrangements with supervisors regarding the right to any VAT refunded by the tax authorities. If and to the extent that the supervisor does not engage in any other VAT-taxed activities, the supervisor can also deregister from the Tax and Customs Administration as a VAT business owner.
We additionally note that, for the time being, the Inland Revenue takes the position that, in principle, a supervisor qualifies as a VAT business owner. It is expected that a new decision will be produced. However, it is not yet clear when this policy will be published. Nevertheless, we are of the opinion that, as of today, supervisors can invoke the aforementioned ruling if they do not act in their own name and do not run a sufficient business risk.