Due to the nature of grants, it is often thought in practice that receiving grants does not incur VAT. An understandable, but possibly incorrect thought. In fact, in some cases, a grant is considered the payment for a service and VAT must be paid on the grant received. If you are not aware of this and the grant was provided inclusive of VAT, it may result in you having less to spend than expected.
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Taxability VAT may be due on a grant if the grant is compensation for a specific service that you are required to perform in exchange for receiving the grant. To do so, there must be a direct link between the subsidy and the specific performance, and there must be 'consumption' of the performance in question by (an) individualizable customer(s). Case law shows that subsidies and the conditions under which they fall into the VAT sphere remain subject to debate, both at the European and national level. For example, earlier this year the Court of Justice ruled in a case that centered on the question of whether a subsidy received by a transport operator was directly related to the transport services provided. The CJEU ruled that the subsidy was not linked to the actual use of the services because it was determined based on the number of vehicle miles provided, and thus linked to potential use. As a result, there was no direct link. The judgment might have sounded different if the subsidy had been based on the number of actual users of the transportation services. A recent opinion of the Advocate General of the Supreme Court addressed a similar question. This conclusion concerned a Dutch educational institution that received state contributions. The question was whether the state contributions constituted remuneration for the education used by students of the educational institution. The A-G argued that the state contributions, calculated in part on the basis of the expected number of pupils attending education in the year in question, were indeed directly related to the educational activities performed. According to the Advocate General, the state contributions are sufficiently cost-effective and precisely tailored to the educational demand at the specific educational institution. The A-G's conclusion is at odds with the rulings of the District Court and the Court of Appeal, which ruled that the state contributions did not constitute remuneration for education. Therefore, it remains to be seen how the Supreme Court will rule on this issue. VAT deduction In addition to determining whether the receipt of the subsidy falls within the VAT sphere, it is also important to determine how the receipt of the subsidy affects the right to deduct VAT. The moment the subsidy falls outside the VAT sphere (i.e., the subsidy does not constitute remuneration for a performance), it may have the effect of limiting the VAT deduction right. In conclusion Whether a grant constitutes consideration for a specific performance remains highly dependent on the specific facts and circumstances. This remains a nuanced and case-by-case assessment, where seemingly minor differences in intent or purpose can lead to a different outcome. It is important to include in the assessment the consequences for your right to VAT deduction. If your institution (regularly) deals with subsidies and has not previously had a test performed on the VAT consequences, it is advisable to do so. Naturally, we will be happy to help you with this assessment. Please feel free to contact us via your account manager, by email at btw@govers.nl or by phone at 040 - 2 504 504. |