Tax on fundraising for charity

The North Holland District Court has ruled that the proceeds of an auction are subject to VAT, even if those proceeds are intended for a charitable cause.

Entrepreneur

The case concerns an organisation whose purpose is to raise funds to provide financial support for research. Only businesses are required to pay VAT. The organisation takes the view that it is not a VAT-registered business. However, the Court ruled that, by organising auctions, golf tournaments and similar events, the organisation participates in economic activity and is therefore a trader. The fact that the entire proceeds from these activities are used for charitable purposes does not alter this conclusion.

Reimbursement

Furthermore, the institution argues that not the entire remuneration received should be subject to VAT. The part of the remuneration that should be regarded as a donation must be exempt from VAT. The donation would be the part of the remuneration that exceeds the normal price.

In doing so, the institution comes up against the VAT rule that the taxable amount is equal to the total remuneration received in return for the services provided. As the institution has not substantiated what the normal price of the services provided is, the court therefore has little choice but to rule that the total remuneration is subject to VAT.

Approval

In section 3 of the Fundraising Decision The ruling states that the gift element may be excluded from the VAT-chargeable consideration (the normal price is, of course, subject to VAT), provided that:

  • the recipient of the service has been informed that the proceeds from the event are earmarked for a specific purpose;
  • the customer has been expressly informed that they are paying an additional amount above the normal price by way of a donation for the service provided, and that the amount of that donation is at the customer’s discretion;
  • all proceeds from the event will go to the charity;
  • the competent inspector has given their written consent to the application of the regulations before the start of the event.

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