Is a foundation that is not a business liable for VAT on EU purchases?

A church body buys pews in Luxembourg and statues in Italy, hoping to benefit from lower foreign rates. It works out rather differently.

The situation

A foundation operating as a church body owns a building containing a church hall and several separate rooms. The hall is used for services, the separate rooms are made available free of charge for meetings and hobby groups. All costs are covered by donations from visitors and users and by some general grants.

The hall is being refitted with new pews and a number of statues of biblical figures. The pews are bought in Luxembourg and the statues made by an artist established in Italy. The total investment is € 150,000.

The question

Must the foundation pay foreign VAT to the supplier of the pews and to the artist, or is Dutch VAT due?

Working it through

The VAT Directive and the Dutch VAT Act set out which transactions are taxable. One of them is the intra-Community acquisition: the acquisition of goods for consideration in another member state by a taxable person acting as such and by legal persons other than taxable persons. Such an acquisition is taxed in the country where the goods arrive.

A business normally holds an active VAT number under which it can buy goods within the EU. With that valid number the supplier can apply the zero rate. The buyer declares the acquisition in its Dutch return, accounts for VAT at the Dutch rate and deducts that VAT immediately, to the extent it makes taxable supplies.

Where the customer has no valid VAT number, the supplier cannot apply the zero rate. The foundation had assumed the suppliers would then charge their own country's VAT: 17% in Luxembourg and 10% in Italy. On the pews that would have saved four percentage points.

Precisely because of the words "by legal persons other than taxable persons", however, it is the foundation that must account for VAT in the Netherlands. The pews then attract 21% instead of 17%, and the statues 9% instead of 10%. The foundation must activate a Dutch VAT number and declare the VAT due. Because it makes no taxable supplies it has no right to deduct, so the return results in a payment.

Note that if the purchases came to no more than € 10,000 a year, the foundation would not fall within the intra-Community acquisition charge. The suppliers would then owe Dutch VAT themselves under the e-commerce rules in force since 1 July 2021. Sales to non-taxable persons are since then taxed in the buyer's country, and suppliers only pay VAT in the member state of dispatch where their own cross-border sales of that kind stay below € 10,000 a year. They can then account for the Dutch VAT through the One Stop Shop.

Why this matters in practice

This case shows that legal persons who are not taxable persons can still owe Dutch VAT. Benefiting from lower foreign rates therefore does not work. That is not only because they fall within the intra-Community acquisition charge, but also because under the e-commerce rules Dutch VAT ends up being borne on the purchases in most cases anyway.

Financial advisers assisting such bodies, including bookkeepers, accountants, tax advisers and grant consultants, should bear this in mind.