Is VAT due on crowdfunding within the EU?

Important VATMOSS update
In December 2017 the European Commission approved a package of reforms to the VATMOSS system. Please visit the VATMOSS resource page for more information. The below post, which is now outdated, will remain here as an archive.

(TL;dr: VAT is due on crowdfunding within the EU. Probably. Don’t shoot the messenger.)

crowdfundingYou may remember that one of the issues which the VATMOSS debacle failed to address was the question of VAT and crowdfunding, an issue which came to a head with Patreon’s initial denial of compliance obligations. The confusion was made possible by a lack of clear guidance: what are the rules on applying VAT for crowdfunding projects, who is responsible for processing and paying in the funds, and what happens if a project does not reach its funding goal after that VAT is paid in?

Getting a straight answer on this issue was an uphill battle to say the least:

In May of last year the EU’s VAT committee (imagine their conference afterparties) announced a review into VAT and crowdfunding rewards. A working paper ensued (.pdf, 500kb, if you’re a masochist).

The result of all of that – the bottom line – was contained in pages 194-195 of an absolutely impenetrable cross-indexed committee document issued in November 2015. It’s important to note that this document is not a law or a binding resolution: it is the committee’s gathered and informed opinion, which as we all know in practice means it is likely to be rubber-stamped into approval.

I have extracted those two pages containing what you need to know (.pdf, 108kb). To sum up, the committee suggests that:

  • VAT is due on crowdfunding campaigns where the contributor receives a good or service (or is promised one) in exchange for their contribution
  • VAT is due when the cash is paid in
  • No VAT is due when the “reward” is not a good or service
  • Platforms which provide crowdfunding services are responsible for dealing with VAT

The VAT applicable on a contribution would of course be determined by the place of supply, not the location of the product or service being pledged. Platforms would therefore need to configure their systems to apply VAT to contributions based on the country of the person contributing to the campaign, not the person receiving it.

Again, these findings are not the rules or the law: they are the committee’s informed recommendation. You do not have to comply with them. However, the committee’s view is, as they say, the way that the wind is blowing.

Now, what happens if – as is common – you make a contribution upfront towards a campaign which does not reach its funding target, and your contribution is refunded? Why should VAT be levied, and therefore refunded, at the time of the contribution (creating extra administration for both crowdfunding platforms and tax authorities), rather than being withheld until the campaign is confirmed to succeed? That question remains unanswered.

If you read this far go get yourself a beer. I need one after writing it.

2 thoughts on “Is VAT due on crowdfunding within the EU?

  1. And here we have everything wrong with digital law.

    When this article was posted on LinkedIn, it received a comment from the Head of Section at the European Commission which said:

    “And here I thought that some guidance would be appreciated. How could I have been so mistaken?! ”

    Has the concept of leadership gone completely out the window in 2016?

    Leadership is acknowledging that questions remain unanswered and saying:
    “Thanks for trying to explain our findings to a non-technical audience. It looks like our guidance didn’t clear up some ambiguity with this issue. What further questions do you need us to clarify?”

    Instead we get what’s called “effort justification” – in other words, I’ve done this work, therefore it’s important. The outcome, the end result, the fact that issues remain unresolved – are secondary to the fact that effort has been performed. The audience with unanswered questions? Ungrateful sods.

  2. (Naughty, naughty: this comment was left from a European Commission IP address in Brussels, which makes it an internal comment from the European Commission and not the writer’s “opinion.” This raises another question: why is the EC responding to criticism through sock puppetry? – HB)

    Dear Ms Burns,

    Had you done some serious research, you would know that actual payment by a contributor to a campaign only happens when the funding target is reached. Before, all contributors do is to give a “potential” contribution (depending on the target being met). Therefore, refunds are rare. If VAT is paid, it is because the merchant raising money has actually received the payment (and supplied a good or service in exchange).

    Besides, I couldn’t see anywhere that the platform is responsible for the VAT of the merchant. Platforms are only responsible for the VAT related to the service supplied (by the platform) to the fundraiser, as I understand.

    Have a nice day. I hope that you find my opinion useful.

    (I’m going to close the comments now, “Tom”, so you can stop refreshing the page (14 times in the last 90 minutes) and get back to whatever it is the taxpayer pays you to do. No wonder Brussels is considering cracking down on web analytics… -HB)

Comments are closed.