Activities performed by a management board member vs. VAT taxation
On 6 October 2017, Minister of Development and Finance issued a general interpretation (no. PT3.8101.11.2017) where he explained on what conditions activities (services) performed by board members for companies may be treated as activities performed as self-employment by a VAT payer.
According to the opinion of the Minister of Development and Finance based on art. 15 section 3 the VAT Act, activities performed by board members of companies acting on the basis of civil-law contracts (management contracts, managerial contracts, etc.) are no to be considered self-employment taxed by VAT if all the following conditions are fulfilled jointly:
1. The first condition – contractual binding of a company and a board member by conditions of performing activities
This condition is considered fulfilled if a board member uses infrastructure and internal organization of a company by managing such structure, personnel, the entire organization and uses it at the same time - uses the company’s technical equipment (e.g. computers, mobile phones, cars) and uses other resources of the company (e.g. office rooms with furnishings, company payment cards and credit cards, participation in trainings and conferences closely related to the held position, entrusted tasks, etc.).
2. The second condition – contractual binding of a board member and a company in terms of remuneration.
This condition is considered fulfilled if a board member acting on the basis of civil-law contracts receives a fixed remuneration.
The above condition will also be fulfilled if:
- the remuneration is composed of a fixed and a variable element (e.g. paid-out after achieving defined management goals that in particular relate to the financial condition of a company, its market position, implementation of a particular investment project, strategy, etc.). However, it should be emphasised that the fixed element must constitute a substantial part of the total remuneration;
- the contract provides for a reduction in remuneration due to temporary non-performance of activities by the manager (e.g. due to its own decision, illness or suspension of the right to carry out functions);
- on the basis of the contract, the remuneration due to the manager includes remuneration for transfer of the ownership title of copies or carrier of a piece or inventive design as well as proprietary copyrights to a piece, granting any permits and authorisations and using inventive designs by the company, including an invention, a utility model, an industrial design, detailed designs, know-how and databases created by the manager, etc. – if the manager as a result of performing the contract creates a piece under the Act on Copyrights and Related Rights.
3. The third condition – contractual binding of a board member and a company concerning liability towards third persons
This condition will be fulfilled if a civil-law contract provides for the company’s liability for the performed management activities, or if the contract does not provides for liability of the manager towards any third parties for damages caused while performing the contract subject.
It should be emphasised that liability of a board member resulting from provisions of law, in particular provisions of the Code of the Commercial Companies is immaterial in the context of fulfilling the above-mentioned condition.
To sum up, evaluation whether activities performed by the company’s management board member constitute activities performed as self-employment taxed by VAT should be preceded by a detailed analysis of the civil-law contract concluded between the company and the board member, as well as an analysis of how the contract is actually performed. If the contract analysis shows that all the above three conditions are fulfilled, then the manager may not be considered a VAT payer. However, if any of the conditions is not fulfilled, then the manager should be considered a VAT payer in relation to the services provided for the company.
Małgorzata Kierczak, Tax Consultant, ATA Tax Sp. z o.o.