2013 -EFC-DAFNE Position Paper - Foundations and VAT

exempt areas unless there was to be compensation of extra costs. A full taxation modelwould abolish social exemptions and would mean that any activity of a public body or publicbenefitorganisation would be taxable if carried out as an economic activity. In the first variantof this option, the VAT rates of previously exempt or non-taxable services are set to thestandard VAT rate. In the second variant, the VAT rates of the previously exempt or nontaxableservices are set to the lowest reduced rate in the individual Member State or 5% if noreduced rate exists. A full taxation model in the full standard rate version would dramaticallyincrease the VAT burden on the sector at a time when it was being asked by governments todo more with less and when social welfare budgets were under huge strain in all MemberStates. The reduced rate variant would also be problematic, as it would not be revenueneutral for public-benefit foundations in the great majority of circumstances if, as suggested,the minimum acceptable rate was 5%. Knowing that for some public benefit foundations ataxation model could be of interest, we note that providing for an option to tax exempt socialand other services in the public interest could be a possible and welcome scenario as it wouldleave it to the public-benefit organisation itself to decide whether to be taxed or not. Theproviders of the tax-exempt services would have a possibility to decide for the application ofthe output VAT on their supplies and thus open themselves the right to deduct the input VATof purchases incurred for purposes of these outgoing supplies. This option was not mentionedin the latest CE report but was in the 2011 report, see pages 188-190,http://ec.europa.eu/taxation_customs/resources/documents/common/publications/studies/vat_public_sector.pdf6. The impact of policy option 3 of the CE report to abolish the regime enjoyed by the publicsector under Article 13 on public-benefit foundations would be limited and it would notaddress the growing burden of irrevocable input VAT cost mentioned under point 1above. The option 3 could potentially lead to increased contracting out of services by publicbodies to public-benefit organisations (for taxable supplies), as public bodies currently oftenprefer to perform those services in-house to save the VAT cost.BackgroundOn 10 January 2013, the European Commission published a report on VAT in the public sector andexemptions in the public interest by Copenhagen Economics (The report, following up from a 2011study by Copenhagen Economics and KPMG, sets out the three policy options identified andassesses the impact of variants of these:http://ec.europa.eu/taxation_customs/resources/documents/common/publications/studies/vat_public_sector_exemptions_en.pdfOn 6 December 2011 the European Commission published the Communication on the future of ValueAdded Tax (VAT):http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/key_documents/communications/com_2011_851_en.pdfThe EFC and DAFNE are members of the European Charities Committee on VAT (ECCVAT)(http://www.eccvat.org/home), which has observer status to an expert group created in 2012 to assistthe European Commission during the current VAT review. For more information, please contacthsurmatz@efc.beEFC & DAFNE: Foundations and VAT April 2013 2

About the EFCThe European Foundation Centre (EFC), founded in 1989, is an association representing more than230 public-benefit foundations and corporate funders active in philanthropy in Europe and beyond.The EFC develops and pursues activities in line with its objectives: creating an enabling legal andfiscal environment for foundations; documenting the foundation landscape; strengthening theinfrastructure of the foundation sector; and promoting collaboration, both among foundations andbetween foundations and other actors, to advance the public good in Europe and beyond.www.efc.beAbout DAFNEDAFNE is a network with its own governance structure bringing together 23 donors and foundationsnetworks from across Europe. Each of these individually serves public benefit foundations and othergrantmakers at national level. With a collective membership of over 6,000 foundations, DAFNEunderpins the individual activities of its members by strengthening collaboration between the nationalassociations and providing a platform for exchange of knowledge. The secretariat of DAFNE is hostedby the EFC.www.dafne-online.euEFC & DAFNE: Foundations and VAT April 2013 3