New VAT status for “intermunicipal associations” | Impact of the European “Digipolis” judgment on Belgian VAT rules

1. Current situation: the emanation theory

Under the traditional Belgian “emanation” theory, an “intermunicipal association” (“intercommunale” in Wallonia or (“opdrachthoudende vereniging” in Flanders) could, to a certain extent, be regarded as acting as a public authority in respect of the tasks entrusted to it by its members (municipalities, cities, etc.), as the association acted in its members’ place. This allowed such associations to carry out transactions without VAT, as though they were non-taxable public bodies, unless, of course, those transactions caused significant distortions of competition, or were not negligible in scale and listed in Article 6, third paragraph, of the Belgian VAT Code.

Financial settlements between the association and its members therefore fell outside the scope of VAT. In the Digipolis judgment, however, the General Court held that a national practice cannot exclude such supplies from the scope of VAT where an economic activity is carried out independently and services are supplied for consideration, with a direct link between the supply/service provided and the consideration received.

2. What changes from 1 January 2027

With the introduction of the new Circular 2026/C/81, the Belgian tax authorities seek to provide a solution that broadly preserves the existing approach for the ‘intermunicipal associations” concerned, in order to minimise the potential impact on the sector.

To achieve this objective, the Circular appears to state that bodies governed by public law which were established by way of association, rather than by way of foundation, may also qualify as a “body governed by public law acting as a public authority” (within the meaning of Article 6, first paragraph, of the Belgian VAT Code), contrary to the previous administrative position set out in Circular AAFisc No. 42/2015.

However, where the condition of “acting as a public authority” cannot be met and the association would therefore qualify as an ordinary “taxable person” (within the meaning of Article 4 of the Belgian VAT Code), the Circular refers to an alternative, namely “independent groups of persons”, formerly known as “cost-sharing associations” (application of Article 44, § 2bis, of the Belgian VAT Code), provided that all applicable conditions can be met.

Existing “intermunicipal associations” must therefore assess the extent to which they can still act “as public authorities” and/or whether the “independent group of persons” arrangement (formerly known as a “cost-sharing association”) could provide a solution enabling them to continue providing services to their members without VAT.

The key change is therefore that the VAT status of the member municipalities can no longer serve as the starting point. Each association concerned will need to reassess its own position.

3. Other potential impacts

Although the Circular primarily concerns the VAT status of associations entrusted with tasks and intermunicipal associations, the texts currently published indicate that there may also be adverse VAT implications for other bodies governed by public law established by way of association, such as autonomous municipal and provincial enterprises, other forms of intermunicipal cooperation, etc.

The new administrative position could jeopardise the current VAT treatment of these other forms of cooperation. Further clarification of the newly introduced concepts is therefore essential, and developments must be closely monitored to avoid unintended VAT consequences for these other cooperation arrangements.

4. What should the associations concerned do now?

For each form of municipal or intermunicipal cooperation, the following must therefore be assessed:

1. What the association’s new VAT status will be;
2. How the various activities and the associated right to deduct VAT should be treated;
3. How contributions, subsidies and other financial flows with members should be classified for VAT purposes and/or reassessed;
4. How any VAT adjustment in respect of existing investments should be carried out.

Should you require further information on this topic, or wish to arrange a working meeting, please do not hesitate to contact the RSM Belgium VAT team (vat@rsmbelgium.be).