The Geen hogere btw (‘No higher VAT’) campaign says that the proposed rise from 9% to 21% would raise around €2.2bn per

Graphic for the No higher VAT campaign

year for the government.

The campaign also dismisses the idea that the tax rise would primarily impact higher earners. Its website notes that the average share of household expenditure on cultural consumption is 1.2%, and that while this does rise slightly in higher income groups, it is still 1% for those with lower incomes.

The campaign had advertisements in major newspapers on 3 June, and has been encouraging supporters to use social media to signal their opposition.

Alongside EFA member GDN, organisations supporting the campaign include the Dutch Olympic Committee, the country’s football governing body (KNVB), and a range of arts, heritage and cultural bodies.

Geen hogere btw’s website says that these organisations oppose the “burden” of this tax change, explaining:

“It places an additional burden on your precious free time, your curiosity and your health. Playing sports keeps you physically fit. Attending a concert or football match contributes to your mental well-being. A newspaper or daily newspaper keeps you informed about world events. Reading a book broadens your world, relaxes, enriches and deepens it, and a pleasant hotel stay is essential for a successful weekend away.”

Meanwhile, GDN is also working in coalition as it fights proposals to reduce the tax deductions applied to charitable donations. At the start of June, GDN director Margreet Plug had a letter published in the newspaper AD, alongside Jurjen de Groot of the Christian group Kerk in Actie and Pieter Grinwis, an MP from the ChristenUnie (Christian Union party). They wrote:

“The new coalition’s intention to drastically reduce the gift deduction testifies to a poor vision of society. Moreover, it is also an unwise austerity policy: the bill will inevitably return if charities and churches are forced to scale back their important work in society. As far as we are concerned, that is a very bad thing.”

Main picture by Karolina Grabowska on Pexels

In May, the government submitted a proposal to parliament for the temporary amendment of the VAT Act and this has now been accepted.

Under the change, domestic sales of goods intended as donations to those fleeing Russia’s attack on Ukraine, as well community purchases from other member states are VAT free. Services related to the delivery of such goods are also included.

The tax exemption mainly applies to sales to nonprofit organisations. Under the exemption, a company registered in the VAT register can deduct the value added tax included in the purchase of these goods and services in its VAT return.

Eligible goods include food, hygiene supplies, medicines and medical supplies, clothes, blankets and emergency accommodation supplies. An example of an eligible service could be one providing meals. The amendment complements a tax exemption applicable to the import of these goods.

Both exemptions took effect on 1 July this year and apply to the sale, importation and corporate procurement of goods or services between 24 February 2022 and 31 December 2022.

Picture of Helsinki by Tapio Haaja on Pexels

In the latest budget announcement, the Irish government has confirmed that its pilot VAT compensation scheme will be continued, but that the limited funding pot will not be increased. This has led to the Irish charity sector voicing disappointment with the limitations of the scheme.

With applications for VAT compensation being eight times greater than the funding pot, Charities Institute Ireland (Cii) had lobbied government not only to keep the scheme in place but to raise the current €5m fund to €20m, enabling more nonprofit organisations to access VAT compensation.

Chair of Charities Institute Ireland, Lisa Nicole Dunne, says:

“We are disappointed that the €5m cap has not been raised. Charities are not only recovering from the impact of Covid on fundraising, and on their own teams, they’re coping with greater demand on vital services. Increasing the VAT compensation scheme would have been a significant boost and provided additional security to the sector to help them support communities to deliver those vital services.” 

Understanding Ireland’s VAT compensation scheme

Ireland’s VAT compensation scheme was introduced on a trial basis in 2018 after a successful sector lobbying campaign to alleviate the tax burden for nonprofits. The scheme allows charitable organisations to claim a refund of a proportion of their eligible VAT costs from a €5m funding pot.

Last month, the Irish government announced that the scheme, initially a 3-year programme (2018-2020) and retained for 2021, would be extended once more to the end of 2022.

Changes in 2022

Next year, new safeguards will be introduced and this is a step that Cii welcomes. From January 2022, a maximum eligible claim ceiling of €1m will be introduced, to guard against large claims disproportionately benefiting from the scheme.

Cii will continue to petition for the compensation scheme to be extended and increased in next year’s budget.

Find out more about the Irish compensation scheme here.

ECCVAT estimates that charities in the EU lose about €6 billion a year in irrecoverable VAT. It says the VAT system treats charities differently depending on the types of service they provide, with most either outside the scope of VAT because they are provided free of charge, meaning charities are unable to recover VAT on purchases made to support these activities. It points out that most charities that do charge for their services also suffer from irrecoverable VAT because their services are classified as exempt under Article 132 (1) a-q of the VAT Directive (2006/112/EC).

In its manifesto, ECCVAT highlights two windows of opportunity to make the VAT system fairer for charities. It recommends the adoption of a proposal by the European Commission that seeks more flexibility when setting VAT rates. In addition to keeping a standard VAT rate of minimum 15%, the Commission suggests that Member States be able to put in place two separate reduced rates of between 5% and the standard rate chosen by the Member State, one exemption from VAT (or ‘zero rate’), and one reduced rate set at between 0% and the reduced rates. This proposal is currently being discussed at the Council.

With the EU elections coming up, ECCVAT also urges current and future EU decision-makers to take the situation of charities in the EU into account, stating that improving the VAT treatment of charities would have a positive impact on millions of Europeans benefiting from services provided by charities.

It also makes a number of suggestions for making improvements, including:

– Recognising the specific position of charities to ensure they receive the benefit of reduced rates and zero rates

– Allowing the deduction of input VAT of non-taxable services and deliveries provided by charities

– Protecting current derogations and reduced rates and make them available to charities across Europe

– Clarifying the VAT system

And, at a national level, introducing VAT compensation refund schemes to help charities compensate costs of irrecoverable VAT.

“Irrecoverable VAT is a significant financial burden on public benefit organisations, which are often treated as the final consumer and we hope that the current VAT reform will be able to take the specific issues of charities into account.”

Backing ECCVAT’s proposal, which is designed to reduce the VAT burden for charities, EFA is encouraging its network of national fundraising associations to replicate or make similar recommendations to contacts and policy-makers in the European Council.

EFA president Gosse Bosma says:

“This is a great opportunity for the sector to come together across Europe and lobby for a clear set of recommendations and reduce the tax burden. ECCVAT has already done the hard work in establishing some realistic recommendations for change. Now it’s down to all of us to communicate our support and reach out to decision-makers that could make this proposal a reality.”

Current European Commission proposal

If the European Commission’s proposal comes into fruition, it will give Member States more flexibility about how they set VAT rules at a national level. In addition to keeping a standard VAT minimum rate of 15%, the European Commission has suggested that Member States be able to put in places two separate reduced VAT rates (between 5% and the standard rate), one exemption and one low level reduced rate (between 0% and the reduced rate).

ECCVAT recommendations

Given the problems that charities encounter with the VAT system, the Commission’s proposal is welcomed, however concerns remain over the large and costly amount of irrecoverable VAT that charities and foundations cannot recover on their purchases.

As a result, ECCVAT is recommending the adoption of the Commission’s proposal, but

Is calling for four further amendments to improve the VAT treatment of charities. This includes:

• Recognising the specific position of charities to ensure they receive the benefit of reduced rates and zero rates
• Allowing the deduction of input VAT of non-taxable services and deliveries provided by charities
• Protecting current derogations and reduced rates and making them available to charities and other public benefit organisations across Europe
• Introducing more regular reviews of the list of the excluded items

ECCVAT works to limit the impact of VAT and other taxes on the work of NGOs across Europe, by conducting research into the effects of VAT on NGOs, lobbying the EU on current VAT rules and monitoring developments in EU legislation.