May 2, 2015, The European Commission (EC) has launched an investigation into whether crowdfunding should be liable to EU VAT. If it concludes that the public investment-raising activity is subject to tax, then many UK projects will face a 20% VAT liability on investor returns.
The UK crowdfunding market was reportedly worth £1.7bn in 2014.
Rewards crowdfunding – a taxable supply?
The EC is particularly concerned with the highly popular practice of ‘rewards crowdfunding’, where the public can contribute funds in return for products or services to be developed by the fundraiser. Recent rewards projects have included software development, films and a range of consumer products that are offered free or at a significant discount to crowdfunding investors.
Intermediary services by platforms subject to VAT?
In addition, the EC is questioning if crowdfunding is a financial service as defined by the EU VAT Directive. If it concludes that it is not, then intermediary services provided by the hundreds of crowdfunding platforms available today will become liable to VAT too.
On 21 April 2015, the EC referred the matter to the EU VAT Committee. This group reviews and promotes the uniform application of the provisions of VAT Directives across the 28 member states of the EU.
Crowdfunding’s explosive growth has finally brought it to the attention of the EU VAT lawmakers. This follows similar reviews of VAT on bitcoins and other digital currencies. The nascent EU market may be nervous about facing a large tax bill and it could create a major competitive threat to local platforms trying to compete with more established US-based markets.