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International associations and organizations in Belgium,

a view of the VAT regime and a case of COST

Value Added Tax

Value Added Tax, VAT, is a consumption tax within the European Union assessed on the value added to goods and services1,2. VAT is collected fractionally via system of partial payments whereby taxable person (i.e. VAT-registered businesses) deduct from the VAT they have collected the amount of tax they have paid to other taxable persons on purchases for their business activities. The VAT is borne ultimately by the final consumer.

A service is taxable in purchases between businesses (Business-to-Business, B2B) the place where customer is situated and in purchases between business and consumers (B2C) the place where supplier is established. However, e.g. scientific and educational services are taxed at the place of consumption. The aim of EU for the legislation is to shift the taxation of VAT to the place of consumption3.

VAT exemptions

EU Member States shall exempt VAT within the supply of goods or services to the European Union, the European Atomic Energy Community, the European Central Bank, the European Investment Bank, or to the bodies set up by the Union and to other international bodies recognised as such by the public authorities of the host Member States, and to members of such bodies, within the limits and under the conditions laid down by the international conventions establishing the bodies or by headquarters agreements4. In many cases VAT exemptions are based on mutuality, i.e. the member countries of the organization under the VAT exemptions are also admitting VAT exemptions for similar cases.

VAT exemptions are organized either by purchasing without VAT or by the use of VAT refunds.

1 Common system of value added tax (‘the VAT Directive’) http://europa.eu/legislation_summaries/taxation/l31057_en.htm 2 How VAT Works ?, VAT Exemptions, VAT legislation recently adopted, …. http://ec.europa.eu/taxation_customs/taxation/vat 3 Towards a simpler, more robust and efficient VAT system tailored to the single market, EC Communication COM(2011)851 final, http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/key_documents/communications/com_2011_851_en.pdf 4 Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax with amendments and corrections by 1.1.2011, (article 151.1(aa-b)) http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2006L0112:20110101:EN:PDF

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The aim of EU is to restrict the use of VAT exemptions and to ask member states possible to compensate them by using of existing mechanisms outside the VAT system 5.

International associations and organizations in Belgium

Three different types of international associations with a legal personality exist under Belgian law6:

1. aisbl; international non-profit association The only legal regime to a non-profit association with an international mission. The most stabile association format (i.e. the establishment, modifications in its statutes and the dissolution are rather complex).

2. asbl; ”domestic” non-profit association Can include a purpose of an international utility

3. A Belgian centre of activities of a foreign association Practically very similar to “asbl”

Non-profit associations may not pursue industrial and commercial activities. However, economic activities which promote the non-profit purpose of the association are allowed. Non-profit associations are in principle subject to tax on legal entities, not to corporation tax. They will not be taxed on subsidies, gifts, membership fees or any other income from its activities if they are of a non-profit making nature. But in purchasing goods and services they have to pay VAT7. The Belgian tax administration has earlier returned VAT to non-profit associations in very limited cases8, but this practice has been tightened up lately9.

The EU Member States have established international organisations10 like the European Union and EURATOM operated with their agencies in Belgium. These international organisations and their bodies are not subject to VAT exemptions or tax reductions as such. Only in the cases that they have been established under the conditions of VAT (and other tax) exemptions and the host Member State has recognised these, possibilities for the exemptions can come in force.

Options for COST

The operative activities of COST have been separated from the responsibility of the European Communities (nowadays the European Union) and from the guidance of the European Commission in the year 2003 and transmitted to the COST Office founded for these purposes in

5 on the page 10 of the footnote 3 6 Practical INGO Guide, Federation of European and International Associations Established in Brussels aisbl (FAIB), http://faib.org/practical_guide_preface ; Chapters 8.1 (legal status), 8.2 (revenues and assets) and 8.6 (tax regime) 7 as reported also e.g. in the EFC Briefing Note on the 2nd March 2009: Value Added Tax and Public Benefit Foundations: A selection of examples collected by the EFC, European Foundation Centre aisbl, http://www.efc.be/Legal/Documents/VATCaseStudiesMar09.pdf 8 Denis-Emmanuel Philippe & Peter Vlientinck; Belgium international professional associations: A helicopter view of the tax regime. Tax Planning International European Tax Service, vol. 12, nr 9, 2010. p. 16-19. http://www.gencs.eu/uploads/news/TPI%20vol12.pdf 9 VAT Issues, European Foundation Centre aisbl (EFC), http://www.efc.be/Legal/Pages/VATissues.aspx 10 Intergovernmental organisations (IGOs) are international organisations, the establishments of which are based on agreements between governments of the states. A legal structure of an international organisation can be varied.

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Brussels and operated under the auspices of the European Science Foundation ESF, a French international non-governmental non-profit association located in Strasbourg11,12. Within this transmission the duties of secretary works for COST Actions lost its tax (and VAT) exemptions. The assessments of proposals and the operational support for the COST Actions have to be organized in a form of an implementing agency. Relatively small budgetary and organizational volume of COST makes it quite unsuitable for operating as an international organization13. Some of the executive agencies of the European Union14 could act as an implementing agency for COST, but this option will cause the replacing of all features of COST by Coordinated Actions of the Framework Programmes15. It is not expected that the European Union will reverse the earlier decision16 of outsourcing of the operational activities of the COST Actions to an appropriate organization of the COST Member States. Practically COST will have only one option to choose17: A legal form of the implementing agency is the most possibly such that the rationales for VAT exemptions will be lacking. Helsinki, on the 28th February 2012 Mr Raimo Pulkkinen, DTech Ms Liisa Ewart, LL.M., MBA Chief Adviser, Tekes Legal Counsel, Tekes COST CSO Member COA General Assembly Member

11 Modified proposal for Council Decisions concerning the specific programmes implementing the Sixth Framework Programme.... COM(2002)43 final, 30.1.2002, Chapter: 2.1 Support for the co-ordination of activities, Paragraph: Scientific and technological co-operation activities carried out in the European co-operation networks. http://cordis.europa.eu/documents/documentlibrary/53333731EN6.pdf 12 Declaration of COST, COST Ministerial Conference in Dubrovnik, 27 May 2003, COST Document 252/03 http://www.consilium.europa.eu/uedocs/cmsUpload/2003-Dubrovnik_Declaration.EN.pdf 13 The Commission response on questions addressed by COST in writing before the meeting; A draft summary of conclusions, the 4th High level Commission/COST Strategic Group meeting (HLSG), 24 Oct. 2008. The response referred also the recommended solutions of the Kneucker Report (Raoul Kneucker, Re-Examination of the Legal Status and the Governance of COST, 24 pages, Vienna, 1 August 2008). 14 http://europa.eu/agencies/executive_agencies 15 FP7 Mid-Term Evaluation of COST 2010; Option C, http://ec.europa.eu/research/era/docs/en/cost-fp7-mid-term-evaluation.pdf . 16 The decision on the proposal presented at the footnote 11: OJ L294, 29.10.2002, p. 36; http://cordis.europa.eu/documents/documentlibrary/66622441EN6.pdf “COST is a long-standing bottom-up mechanism that facilitates coordination and exchanges between nationally funded scientists and research teams in a variety of areas. In order for COST to continue to fulfill its intergovernmental role and to ensure a cost-effective contribution to research coordination within the European research area, its management arrangements must be adapted to the new context. This will entail the establishment by COST member states of an appropriate organization to which financial support may then be granted under this programme.” 17 Alternative options for future Legal Status of COST, 12 Febr. 2010, COST Document 4106/2010, http://www.consilium.europa.eu/igcpdf/en/10/st04/st04106.en10.pdf