EU VAT Law ( and other International VAT jurisdictions) does not recognise the ‘ principle of mutuality’ for the indirect tax purpose and does not, per se, exempt / exclude the transactions between a mutual entity and its members ( as in the members’ club).
Unlike the doctrine of mutuality in direct/income taxation—which postulates that “a person cannot make a profit from himself”—the EU VAT system views the entity and its members as legally distinct for indirect tax purposes. Even if an association is non-profit and operates solely for the benefit of its members, membership dues and transactional charges are subject to VAT if the members receive specific, identifiable benefits or access to facilities in return.
However, VAT is levied only if there’s a DIRECT LINK between the services provided and the consideration received (like access to a golf club, Gym, Indoor Games, Swimming Pool, Spa, etc.). In case of general contributions or donations to cover the operational costs of the entity without any specific corresponding service or counter performance may not attract the levy of VAT.
India’s GST law has attempted to follow the footsteps of the International VAT practice. However, the manner in which this is implemented and the horribly drafted provision coupled with the lack of the Constitutional Foundation would mean that the issue of the levy of GST on such entities – hitherto governed by the principle of mutuality will remain mired in the legal battle for a long time.
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