6.1 Introduction

Once it is established that a certain supply, involving a voucher, is performed free of charge, it has to be determined whether that transaction needs to be taxed, at what point in time it should be taxed and how to determine the taxable amount for these transactions. Also, if certain transactions involving vouchers that are performed for no consideration should not be taxed, such as the issue and transfer of MPVs, it should be determined what the proper VAT treatment of these transactions should be. The basis for answering these questions is laid in this Section.

Free supplies, or supplies for no consideration, are part of the ‘promotional mix’, as described in Section 1.1. Giving away goods or services for free with certain (amounts) of purchases may entice customers to buy certain products or to buy more products. As a promotional activity, goods and services can also be given away for free by giving away free vouchers that can be redeemed for these goods or services.

Giving away goods and services for free to customers leads to consumption. As VAT is aimed at taxing (expenditure for) local private consumption, in this Chapter I will research the current and appropriate or desirable VAT treatment of free supplies. The tension between the right to deduct VAT on business related costs and the need to tax consumption, as described in Section 1.1, requires that I apply the test of ‘commercial and economic reality’ to the VAT treatment of supplies made for no consideration. Establishing the appropriate VAT treatment of free supplies helps me to establish the appropriate VAT treatment of vouchers, which I will do in Chapter 9.