VAT rules for crowdfunding agreed upon by EU states

Representatives from EU member states and the EU Commission making up the EU VAT Committee have agreed on a framework for rules on the value-added tax treatment of crowdfunding.

The term, which covers the process of raising funds for a specific project via an online open call for contributions, is run over specialist peer-to-peer sites that put entrepreneurs and contributors in touch with one another.

No benefit

The VAT treatment of the process has been an issue of confusion because of the characteristics of the model.

As the contributor to a campaign does not receive a reward, there is no taxable supply of goods or services, and as such, a donation that is freely given is not subject to VAT liabilities.

Some crowdfunding does involve 'reward' though, and in these cases, contributors to the campaign receive goods or services in exchange for the monetary support they have provided to help bring the project to market.

Taxable transaction

The VAT Committee has now unanimously agreed that reward-based crowdfunding does constitute a taxable transaction for VAT purposes, with certain caveats around there being a direct link between the supply of goods or services.

Accounting for the fact that a crowdfunding contributor typically gives a contribution before any goods or services are supplied in exchange, the Committee also unanimously agreed that the contribution made via the campaign is essentially a payment made on account of goods or services, and these will be charged VAT.