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Jia Xie, associate at Lewis Silkin, considers the EU VAT Committee’s recently published guidelines on the VAT treatment of crowdfunding. For entrepreneurs who are considering crowdfunding, especially those adopting the reward-based model, it is likely to be subject to VAT. The activities of crowdfunding platforms supplying services to entrepreneurs fall within the scope of VAT and must be taxed unless what is provided consists of exempted financial services.
EU VAT Committee guidelines on crowdfunding, LNB News 16/11/2015 86
The European Commission’s VAT Committee has added a section on the VAT treatment of crowdfunding to its list of guidelines on various provisions of the VAT Directive 2006/112/EC. These guidelines are of an advisory nature only and do not constitute an official interpretation of EU law.
What is the background to these new guidelines?
The global crowdfunding market has grown substantially over the past few years despite having only been around for a decade or so. At European level, it is estimated that the crowdfunding activity during 2014 was worth close to €3bn.
Crowdfunding is seen as a popular alternative financing tool for start-ups and small businesses, especially in the technology and media sectors. The funding process involves the ‘entrepreneur’, the recipient of funds who creates a project and the ‘contributors’, those who provide funding to that project. Often it will also involve an online funding platform that usually charges a fixed amount of the funds raised.
Perhaps one of the factors contributing to the rapid growth of crowdfunding is the lack of a regulatory framework. Among the issues, the VAT implications of crowdfunding seem to have been ‘overlooked’ for some time.
What do the Committee's guidelines cover?
The EU’s VAT Committee published its guidelines on the VAT treatment of crowdfunding earlier this month. While the Committee’s guidelines are not officially binding on Member States, they are generally followed by the relevant tax authorities.
The VAT Committee considers that the VAT treatment of crowdfunding depends on its return model, which is divided broadly into four categories:
Contributors make contributions without given anything in return. VAT issues are unlikely to arise given the characteristics of the model. VAT is only applicable to a supply of goods or services.
Contributors receive goods or
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