In Denmark, non-profit organisations such as sports associations and NGOs are exempt from paying VAT (Value-Added Tax). The European Commission is disputing this right and has initiated proceedings against the Danish state for breaking the laws of competition. Meanwhile the European Parliament wants the Danish model formalised in the whole of the EU
By Daniel Ortved
“Every time we use one kroner on administration we lose one kroner for sports-related activities,” says Anni Jensen, head chairwoman of the sports association Galten FS (GFS), west of Aarhus. She is worried about a possible future where her association would have to pay Value-Added Tax (VAT) on the same terms as a company.
GFS covers an area with around 10.000 inhabitants, of which 2000 are members. It is a typical nuclear family area with a lot of children, so the sports association plays an important part in the local society. The existence of GFS is based on membership fees.
GFS has saved money through arranging different events, such as the annual city town fair. That extra money would be heavily reduced, if the Commission gets its will and Denmark adjusts to the common European rules on VAT.
“But we still want to do an effort to raise further money, because there has to be something to use for fun things. For instance, we opened a fitness centre one year ago, which we had saved up for during some years to be able to establish. Opportunities like that would be heavily reduced,” says Anni Jensen.
Wants exemption to be common
A long way from her association west of Aarhus, the Commission in the EU is preparing a thorough reform of the VAT-directive. Meanwhile, back in 2008, the Commission started proceedings against Denmark and other EU member states for exempting non-profit organisations such as NGOs, charitable organisations and sports organisations from paying VAT.
Those proceedings have not yet developed into a court case, but the public debates on the matter in Denmark have made Danish members of the European Parliament (MEPs) work to implement the Danish model, which has existed since 2002, into the current VAT-legislation in the EU.
Recently, an initiative report “on the future of VAT” was carried through with a huge majority in the European Parliament. Danish MEP Dan Jørgensen (Social Democrat) wants the exemption of non-profit organisations from paying VAT to be extended to the whole of the EU.
“What we do [in Denmark] is the right thing, and it should be legal in all of Europe. I am not entirely sure what goes on in other countries, but I am sure that it will be a positive thing for them also,” says the Danish MEP. The initiative report is only a recommendation for the Commission. They will use it later this year when they look to reform the current VAT-legislation. Dan Jørgensen feels sure that it will go through.
“I cannot be sure, as the initiative report does not have a legal status. We had a majority in the parliament and usually the Commission chooses to listen to this. Only if the Council turns against it I think we could have a situation where we would not win,” he explains.
A day to pay might still come
Robert Hinnerskov is the general secretary of ISOBRO, a Danish organisation that works for the conditions of Danish NGOs and other non-profit organisations. He does not agree with Dan Jørgensen’s optimism.
“It is my point of view that, unfortunately, there is no background for this way of putting it. We are dealing with a recommendation, which is put forward on a very early stage in a legislation process on a complicated question where there are a lot of contradictive points of views,” he says, referring to that the Commission and the Parliament seems to disagree on this matter.
“It will make the political process difficult. I fear that other considerations, than those in favour of the non-profit organisations, might call upon attention because of this,” he says.
Making and changing EU legislation can take a long time, and Robert Hinnerskov thinks a verdict in an eventual court case between Denmark and the Commission could come even before a reform of the VAT-directive is reality. If that is so, the Commission would be able to force Denmark to change its rules.
“The associations and organisations that are today exempt from paying VAT, should therefore still consider that a day might come where the exemption is gone and the economical realities therefore will change radically,” says Robert Hinnerskov.
Commission and Parliament far from agree
On the 13th of October, the European Parliament handed over their initiative report “on the future of VAT” to the Lithuanian Commissioner Algirdas Semeta. The Parliament and the Commissioner disagreed when it came to the question about VAT exemption.
“There is a lot of different ways of using the VAT system in the EU, and that hinders maximum potential of the inner market. If we should proceed, we have to leave the comfort zone of business as usual, and some member states might have to jump over their own shadow,” said Algirdas Semeta.
One of the many MEPs who took the chance to comment on the VAT exempt problem in the plenary was Finnish Carl Haglund (Swedish minority party, Svenska Folkpartiet).
“I think there is a clear majority in this house that would be against that, so I hope the Commission will not pursue it,” he said, referring to the Commissioners wish to get Denmark, Finland, Sweden and other EU member states back on the European VAT-track. He also pointed out that 2011 is the European Year of Volunteering and it would be contradictive to enforce non-profit associations to pay VAT.
Expert wants level-headedness
But not everyone agrees with the level of severeness, some media and politicians have foreseen as the consequences of the Commissioner getting his will.
Bjarne Ibsen, professor at the Institute for Movement, Sports and Society, Southern Danish University, does not look on the dark side regarding the consequences of an eventual removal of the VAT exempt in Denmark. He says the non-profit organisations plays an important role both in terms of strengthening democratic values as well as filling out concrete and important functions in society. He thinks, however, that they would survive being obliged to pay VAT.
“Membership fees in the types of associations are usually very low. I will not reject that it could have an influence on the numbers of members. My point is that it would have an effect but not as drastic as it has formerly been said,” he says. He does admit, though, that it would have an effect for those associations looking for a turnout.
“The associations, acting on a market, hosting town fairs and fun runs, will lose their advantage, and the average user will not be able to see a difference in the price. But then again you can ask the question: is it fair to act as a “for profit”-association without paying VAT?”
The administration would become the burden
Anni Jensen, chairwoman at GFS, does not agree. Forcing the non-profit organisations to pay VAT would be a heavy burden, she says.
“In principle, we are economically ready for it. I do not think, though, that we would be able to find a volunteer treasurer that would be able to take charge of a VAT account as well. VAT gives an extra administrative burden. I fear we would have to employ a corporate treasurer. Professional help on this matter would be extremely expensive,” she says.