VAT reform for nonprofits may be on the agenda, with a report commissioned from Copenhagen Economics due to be submitted to the European Commission this Autumn.
Having drafted a primary paper giving an overview of VAT systems across the 27 EU member states, Copenhagen Economics was commissioned to draft a second report this year exploring the impact of introducing VAT at a flat rate. In some nations, nonprofits pay a lower level of VAT and there are fears that the introduction of a flat rate would increase the cost.
After meetings with ISOBRO and ECCVAT, the international economics consultancy has confirmed the inclusion of a designated section on the issues and likely costs facing nonprofits, with case studies to demonstrate the VAT burden for charities.
ECCVAT anticipates that there are two possible VAT relief structures that the Commission may consider for nonprofit organisations. Either such organisations may be deemed exempt from VAT in future or a refund scheme, similar to the one that is currently operative in Denmark, may be rolled out across the EU. The Danish VAT refund scheme has enabled nonprofits to make significant savings, with the Danish Cancer Society alone reported as having saved as much as DKK 23 million annually.
“The current VAT burden facing nonprofits in many EU member states is immense,” says Robert Hinnerskov, ISOBRO. “We need to do all we can to ensure that any changes to the current VAT system favour nonprofits, recognising the social value of their work and that they operate on tight budgets, often heavily reliant upon volunteers.”
Copenhagen Economics’ forthcoming report will demonstrate the GDP scale of nonprofits and give examples on the VAT burden facing charities. EFA and its members will continue to work through ECCVAT to lobby for a VAT system that recognises the social value of nonprofit organistions and minimises the tax bill.