Some municipalities set up an AGB, or autonomous municipal company, to which they entrust the management of certain activities, such as the operation of sports facilities.
Whether an AGB must charge VAT, and is therefore also entitled to deduct VAT, depends on whether the AGB has a profit motive. If the AGB does have a profit motive, in principle its transactions are subject to VAT. If, on the other hand, it does not have a profit motive, the VAT exemption can be applied. But in that case, it is not entitled to deduct VAT. It is therefore crucial to check whether the AGB has a profit motive or not.
The question of whether or not an AGB should be regarded as a profit-making institution has been reviewed by the VAT authorities (Circular 2022/C/100 of 13 October 2022).
How to determine the profit motive
Since the pursuit of a profit motive cannot be inferred from its mere mention in the articles of association, it is necessary to determine how the actual existence of a profit motive (and thus of distributable profits) can be established on the part of the AGB.
The VAT authorities state in their circular that it is not sufficient simply to compare the book for incoming invoices and the book for outgoing invoices/journal of receipts.
Instead, the operating result (including depreciation, provisioning, etc.) should be taken into account, excluding exceptional expenses and exceptional income. The operating and capital subsidies paid by the municipal authorities to the AGB are also disregarded and are not eligible for determining the existence of a profit. Only operating grants and investment grants made available to the autonomous municipal company by an entity other than a municipal authority shall be taken into account.
Which price subsidies
The authorities assume that subsidies paid by a municipality to the AGB can be regarded as price subsidies if the following conditions are met:
- before the start of the activities or before the beginning of a new financial year, the AGB will determine the price of each of the services that it will provide, in this case, a different price will be fixed for each of these services according to the nature of the recipient of these services (whether or not a resident of the municipality, member of a club, school, etc.);
- in the same way, before the start of the activities of the AGB or before the beginning of a new financial year of the AGB, the municipality will determine the amount of the price subsidy which it intends to allocate to each service provided by the AGB (in this case with a distinction according to the nature of the recipient of the services); it is therefore a requirement that the amount of the price subsidy is determined before the AGB provides any service;
- these individualised amounts can only be revised twice a year; again, we would point out that the price subsidies are adjusted only for future services; the burden of proof for the date of entry into force of these new amounts and for the fact that they are not applied retroactively lies with the AGB;
- these individualised amounts are calculated on the basis of the actual number of services provided by the AGB and not on the basis of an estimated number at the beginning of the activity or at the beginning of the financial year;
- the VAT on the price subsidies becomes chargeable in accordance with the rules applicable to the income to which they relate.
This circular replaces VAT decision no. E.T.129.288 of 19 January 2016 with effect from 1 January 2023.
Our Bofidi experts will be happy to help you
Do you have any specific questions about this circular? Then please do not hesitate to contact us. Bofidi’s team of experts will be happy to help you.