1.8 Approach of the research

A research framework or referencing system is necessary for examining the VAT treatment of promotional activities, because I need a framework to establish whether the VAT treatment of promotional activities as based on positive law is in line with the (relevant) fundamental principles underlying the EU VAT system as well as the basic features of the EU VAT system. Therefore, I will first describe the theoretical framework and referencing system in Chapter 2.

In Chapter 3, I describe the current VAT treatment of transactions that are subject to VAT and economic activities in general, focussing on the ‘direct link’ that is necessary for linking a payment (in cash or in kind) to a supply of goods or services, making it ‘consideration’ from a VAT perspective. If there is no consideration, a supply is made free of charge, which can have a different VAT treatment from a supply made for consideration.

Before examining the VAT treatment of supplies that are not made for consideration, I will examine in Chapter 4 how composite supplies (multiple-element supplies) are and should be treated from a VAT perspective, focussing on combination deals and how to determine whether certain elements or components of a combination deal are or should be considered to be made free of charge. I will also examine how to allocate a single consideration that is paid to a composite supply.

After looking into the VAT treatment of composite supplies, I examine the VAT treatment of supplies where the advertised or original consideration is decreased, but not to the full amount: discounts and rebates. In Chapter 5, I examine the current rules for the VAT treatment of discounts, rebates and cash backs , especially in cross-border situations and where the business granting the discount or rebate leapfrogs his original customer by granting a cash back to a customer further down the supply chain.

In Chapter 6, I look at the VAT treatment of supplies that are made for no consideration (i.e. for free). If such transactions lead to consumption, should they be subject to VAT? Or should the VAT that was initially deducted on the purchase of the elements of the supply be adjusted? I will focus on goods and services that are supplied for free as promotional activities or part thereof, which means that I also examine under what circumstances a free supply that is made both for business purposes and that can lead to untaxed consumption should be taxed, and how.

In the last three chapters, I examine other specific types of promotional activities, starting with the VAT treatment of bartering in Chapter 7. In Chapter 8, I look into the VAT treatment of organising prize contests, lotteries and the like where the business does not charge a consideration for participating in the contest and where prizes are given away to winners of those contests.

In the last chapter of this research, Chapter 9, all previous promotional activities come together in a specific promotional scheme: the use of vouchers (in the broadest sense of that word). I examine the VAT treatment of using vouchers for transactions, in situations where the vouchers are sold for consideration or the business that accepts the voucher in return for a supply is compensated or paid by the issuer of the voucher, as well as transactions involving ‘free’ vouchers. I specifically examine the current EU VAT rules for vouchers (as applicable from 1 January 2019), where I find that these new rules seem to allow room for improvement. I also give some suggestions in that respect.

I have not dedicated a separate Chapter to the deduction of VAT incurred on costs relating to promotional activities and voucher transactions. Instead, where relevant, VAT deduction is included in each Chapter separately, because VAT deduction depends on the nature of the transactions for which the relevant costs are incurred, and each Chapter is dedicated to a specific type of promotional transactions or activities.

I end this research with a summary in Chapter 10, where I examine whether all research questions have been addressed and answered in a satisfactory manner and where I provide an overview of the main topics that I examined as well as any suggestions that I made with regard to desired or appropriate law.