Are membership fees taxable? Why you should not compare apples with pears
Whether a membership fee is taxable depends on the direct link between the payment and what the member gets in return. The classic Apple and Pear judgment shows how that works.
The Dutch Tax Administration has opened a portal for foundations and associations, so they can easily check what tax obligations they have. It includes a VAT position check. If you enter there that you charge members a subscription, the result tells you to get in touch about whether that subscription is taxable.
It is worth understanding the position before you do. Whether a membership fee is taxable turns entirely on the direct link between the payment and what the payer gets in return, and that varies from case to case.
The direct link
The Dutch VAT Act taxes supplies of goods and services made for consideration. There is consideration where a direct link exists between the supply and the payment received. In Apple and Pear the Court of Justice clarified in 1988 how that concept should be interpreted.
Apples and pears
The Apple and Pear Development Council presented itself as a body governed by public law and was tasked with advertising, running promotional campaigns and improving the quality of apples and pears grown in England and Wales.
To cover the costs it levied subscriptions on its members, apple and pear growers. The tax authorities considered that those subscriptions were directly linked to the benefit an individual grower derived from the Council's work.
The Court held otherwise: the benefits of the Council's services accrued to the sector as a whole and not to the individual grower. The subscription was imposed on the individual grower as a statutory obligation, and whether that grower personally benefited was irrelevant.
The impact of this classic judgment
After the judgment it became clear that there is a direct link only where the subscription produces an individual benefit. In this case the whole sector benefited from the work, not just the members, so an individual benefit was absent.
Why this matters in practice
The judgment shows that the direct link determines whether a supply can be taxed. Whether there is an individual benefit must be assessed case by case.
The District Court of Noord-Holland recently ruled on whether subscriptions paid by members of a classic car association were taxable. It built on Apple and Pear, and there too the direct link was decisive. There was none, because members always paid the same amount regardless of how far they took part in the association's activities, and because they could not require the association to organise activities or determine how many.
Apple and Pear and the case law that followed show that an individual benefit is decisive for whether a subscription is taxable.