Non-profits under increased tax pressure: time for a (re)assessment?

This trend is not new. We previously analysed this issue in our contribution “Tax points of attention for private non-profits with commercial (ancillary) activities” (part 1 and part 2), published in Fiscale Actualiteit 2023/36 and 2023/37 (November 2023).

Recent developments confirm that these points of attention are more relevant than ever today. We also observe a clear increase in tax audits and questions regarding non-profit structures.

Non-profit ≠ automatically subject to legal entities tax

A persistent misconception is that a non-profit is, by definition, subject to legal entities tax. In reality, this does not depend on the legal form, but on the nature and scale of the activities.

The core of the discussion lies in whether the activities qualify as an “operation of an enterprise” or “activities of a profit-making nature”. The assessment is highly factual, with elements such as scale, organisation, pricing and professionalisation playing an important role.

When the activities are qualified as such, the non-profit risks becoming subject to corporate income tax.

The impact is often significant:

• taxation of all income (including membership fees, subsidies and donations);
• discussion on the deductibility of costs linked to the non-profit purpose;
• and this without other levies disappearing, such as the patrimonial tax.

A non-profit remains, in principle, subject to patrimonial tax, regardless of whether it is subject to legal entities tax or corporate income tax. However, when a non-profit falls under corporate income tax, this results in a cumulative tax burden (corporate income tax and patrimonial tax), which can significantly increase the overall tax pressure, even though the patrimonial tax is then deductible.

When does an activity become ‘too commercial’?

In practice, the discussion often arises in non-profits that grow over time and professionalise their activities.

Example

A sports association operates, in addition to its sports activities, a cafeteria and regularly organises events. Where this was initially limited and supportive, it gradually evolves into a structural activity with fixed opening hours, staff and market-based pricing.

In such a case, the tax authorities may consider that this activity is no longer merely ancillary, but constitutes an independent economic activity, potentially leading to corporate income tax liability.

It is important to note that this assessment is made at the level of the non-profit as a whole. In other words: if one activity triggers corporate income tax, this generally applies to all activities of the non-profit, not only to the (commercial) activity concerned.

It is also important to emphasise that using the proceeds for the non-profit purpose is, in itself, not sufficient to remain outside corporate income tax.

VAT: an often underestimated risk

Alongside the discussion on corporate income tax, a VAT issue often arises.

A non-profit that supplies goods or services within the framework of an economic activity and receives remuneration is, in principle, subject to VAT, unless an exemption applies.

In practice, we see that issues often arise in cases such as:

• membership fees that in reality constitute consideration for services;
• events, workshops or commercial ancillary activities;
• subsidies (distinction between operating subsidies and price-related subsidies).

In addition, VAT exemptions (art. 44 VAT Code, including for sports, cultural and educational activities) are increasingly under pressure, particularly where:

• structural surpluses are generated; or
• activities are organised in a more professional manner.

Directors are also exposed

An important, and often underestimated, point of attention is the personal liability of directors.

If a non-profit has wrongly not charged VAT and is confronted with a (potentially significant) VAT reassessment, the tax authorities may, in certain cases, hold the directors jointly liable, especially in cases of repeated non-payment.

This means that tax discussions are no longer limited to the level of the non-profit, but may also entail personal risk.

Increased focus from the tax authorities

Based on our experience, the tax authorities are currently focusing in particular on:

• non-profits with significant turnover or accumulated reserves;
• highly professionalised activities;
• situations where commercial activities are not clearly subordinate to the non-profit purpose.

The combination of these elements is often sufficient to justify a thorough tax requalification.

Time for a proactive approach

For many non-profits, it is advisable to critically reassess their operations. In certain cases, it may for example be useful to:

• clearly delineate commercial activities;
• or place these activities in a separate company.

A proactive analysis allows risks to be identified in time while also properly leveraging opportunities.

Conclusion

The combination of greater commercial freedom under the CCA and a stricter tax approach means that the traditional comfort surrounding non-profit structures is becoming less evident.

A non-profit that is (partly) commercially active would do well today to review its tax position in a timely manner.

How can we support you?

At Moore Law, we have extensive experience in assisting non-profits and non-profit organisations with tax audits, risk analyses and restructurings.

Given the increasing number of audits and the stricter stance of the tax authorities, a proactive analysis is no unnecessary luxury. Would you like to assess whether your non-profit is still correctly structured or explore possible optimisations?

Do not hesitate to contact us. We are happy to think along with you.