Board fees to be taxed as income from services – but this does not apply to Board assignments established prior to 20 June 2017

We have previously written about a decision by the Supreme Administrative Court (HFD) from 20 June 2017 in which it was determined that fees to Board members are to be taxed, as a major rule, as income from services even if the invoicing takes place via a company or sole proprietorship.

In a position paper from 2008, Notice of Tax Assessment for Self-employed Persons (Case Nr. 131751308-08/111), the Tax Agency stated that work as a Board member which does not refer to the Board member’s own, or a related party’s, ownership in the company in question should be able to be seen to comprise business operations, either as a stage consulting operations, or as an own line of business if there are at least three such Board assignments in effect at the same time.

Due to the decision from HFD, the Tax Agency has now changed its position by eliminating the statement regarding Board members. This implies that in entering into new agreements after HFD’s decision of the 20th of June 2017, the previous position cannot be applied to fees paid to Board members. This applies regardless if the invoicing takes place via a legal entity or a sole proprietorship. In addition, the Tax Agency is of the opinion that the agreements which have already been established should, usually, be in effect during a certain period of time without any consequences as regards income taxation, on the premise that the Board members have fulfilled the previously established criteria regarding business operations and that they invoice via a company or sole proprietorship. This limitation should, however, only apply to agreements entered into prior to HFD’s decision and to fees referring to the current financial year (at the point in time of HFD’s decision) in companies paying compensation for Board work.

According to the Tax Agency, the equivalent assessment and treatment also apply to the question of social security contributions.