Crowdfunding VAT issues
- Jan 23, 2021 | Richard Asquith
Whilst still a small slice of the sharing economy, crowdfunding is one of the fastest growing areas of this economy and, as a financial services activity, has its own unique VAT issues. This blog is part of series from an article first published in British Tax review. You can download Avalara's VAT of the gig and sharing economies guide here.
Crowdfunding uses the internet to attract large numbers of people to contribute small amounts of cash to fund projects. These projects can take on many forms such as new business ventures and campaigns to further many types of political or social policy. The first internet-based crowdfunding project was in 1997 to raise US$60,000 to fund a US-tour by the UK rock band Marillion.
Most crowdfunding opportunities are for debt, bonds or an equity stake in a venture. Debt-based crowdfunding is enjoying huge growth rates as an enabler for financing micro-businesses all over the world. From a VAT perspective, this type of crowdfunding is generally viewed as an exempt financial service. However, participation in future profits from intellectual property rights crowdfunding will be subject to VAT.
Reward crowdfunding creates a VAT liability
Increasingly, donors are accepting gifts or rewards related to the campaign cause. Such gifts or rewards can include goods or services, such as: tickets to funded concerts or films; naming rights in books or other media; discounted goods from new businesses.
Increasingly tax authorities are viewing goods or services promised to investors in exchange for their funds in crowdfunding campaigns as liable to VAT as a taxable transaction. In 2015, the European Commission consulted with Member States on the VAT treatment of crowdfunding, and suggested reward-based projects should be liable to VAT.47
In addition, for all types of crowdfunding, the services of intermediary platforms, that provide fundraising services, are within the scope of VAT.