Corporation tax exemption for associations

Although associations or foundations that carry on business operations will be liable for corporation tax, they will qualify for exemption on condition that their annual profit should not exceed 15,000 euros or the sum total of profits for the year under review and the previous four years has not exceeded 75,000 euros. Any loss the association or foundation may have returned for any of these five years will involve the profit for the year in question being fixed at nil. According to parliamentary history, the profit threshold is aimed at discouraging large-scale associations and foundations from applying for exemption, which is why it has been agreed to treat the profit for a loss-making year as if the result for that year had been break-even.

Having posted a profit in the amount of 9,884 euros during its inaugural year, a particular association went on to realise profits for the second and third years of 28,433 and 31,414 euros, respectively. Arguing that it still had some way to go before hitting the cumulative profit threshold of 75,000 euros, the association in respect of its third operating applied for corporation tax exemption. According to the Arnhem‑Leeuwarden Court of Appeal, the grammatical interpretation of the text of the Corporation Tax Act 1969 did not offer enough leeway for such an approach: having posted a profit in excess of 15,000 euros for its third operating year, the association had failed the basic profit exemption criterion for that year, in addition to which it had also failed the second profit exemption criterion (i.e. that of the cumulative profit threshold for the year under review plus the previous four years) as it was still two years short of completing the initial five-year term. The Court of Appeal decided that it went too far to construe the parliamentary history in such a manner as to render associations or foundations that had not yet completed their initial five-year run eligible for the second profit exemption threshold (in the cumulative amount of 75,000 euros) as well.

According to a 2008 decision, a proportionality-based approach to the second profit exemption threshold may be used to accommodate associations and foundations that have not yet been in operation for the requisite five years. According to this approach – which in the case in hand would have reduced the second tax exemption threshold from 75,0000 to 45,000 euros – any association or foundation whose annual profit exceeds 15,000 euros may still be eligible for corporation tax exemption on condition that it should not exceed the proportionate second profit exemption threshold. Unfortunately this would not have done the association much good, given that it had overshot this profit exemption threshold too (by 24,731 euros).

Dutch version: Vrijstelling vennootschapsbelasting vereniging