6.6.2 VAT rates

Because the ‘adjustment through taxation’ rules are meant to ensure equal treatment as between a taxable person who applies goods or services for his own private use or for that of his staff and a final consumer who acquires goods or services of the same type,1 it would make sense to apply the same VAT rate to ‘deemed output’ as the VAT rate that applied to the purchase (and that was deducted). Also, the wording of the relevant provisions does not imply any restrictions regarding the application of any of the VAT rules to the transactions that are treated as supplies for consideration.

No specific rules are included in the EU VAT Directive for situations where the applicable VAT rate was changed between the time of deduction and the time of private use or application. If the taxation was purely meant to retroactively undo VAT deduction, the same VAT amount as originally deducted should become payable upon consumption (proportional to the private consumption). This would require the application of the original VAT rate. Under the current EU VAT rules, this is, however, not foreseen. This could be an(other) argument for the application of an adjustment system that retroactively disallows deduction rather than by taxation.

The economic and commercial reality of these transactions would require the application of the same VAT treatment, because of the fact that the free supply should be treated the same as if the (original) supply was made to a person that is unable to deduct VAT as final consumer. This is also in line with the purpose of EU VAT, i.e. taxing the expenditure on local private consumption.