Where a member of a supervisory board receives a non-variable fixed salary for his services and as a result does not bear any risks vis-à-vis his remuneration, he is not acting as an entrepreneur. This was decided by the Supreme Tax Court in its ruling of November 27, 2019 – (V R 23/19 / R 62/17), thereby abandoning earlier case law.
The appellant was an executive employee of S-AG and at the same time a member of the supervisory board of E-AG, of which S-AG was the sole shareholder. According to the articles of association of E-AG, each member of the supervisory board received an annual fixed salary of € 20,000 or a pro rata share thereof for his activities. The appellant objected to the assumption that as a member of the supervisory board he was an entrepreneur and, in that capacity, provided services subject to VAT. The appeal to the tax court was unsuccessful.
The Supreme Tax Court, however, took a different view and allowed his appeal. It based its decision on the Court of Justice of the European Union’s (ECJ) case-law in relation to Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (recast Sixth Directive). This case law is to be taken into account when interpreting national law. According to the case law of the ECJ, under certain conditions, a member of a supervisory board does not exercise any independent activity. The decisive factor is that the supervisory board member acts on behalf of and under the responsibility of the supervisory board and does not bear any economic risk. In the individual case before the ECJ, the absence of economic risk resulted from the fact that the supervisory board member received a fixed salary which was not dependent on his attendance at meetings or the hours actually worked.
In its new ruling, the Supreme Tax Court agreed with this, abandoning earlier case law, in cases where the supervisory board member received a fixed remuneration for his work. The Supreme Tax Court expressly left open whether the entrepreneurial status of the supervisory board member should be maintained in accordance with previous case law in cases where the member receives a variable remuneration.
Judgment of the Supreme Tax Court on 27 November 2019 (V R 23/19), published on 6 February 2020.