3.2.3 A supply or ‘part of the taxable sales’?

Some supplies are subject to VAT even though there is no consideration. These supplies are ‘treated as if they were made for consideration’ under the relevant provisions from the EU VAT Directive,1 because since VAT is a tax on (expenditure on) consumption, the result of these supplies (i.e. private consumption) should be taxed. I will discuss the VAT treatment of free supplies in Chapter 6. However, it should be noted here that in order to be able to tax a supply by treating it as a supply made for consideration, there has to be a ‘supply’ in the first place.

With regard to the application of goods that are business assets, Article 16 of the EU VAT Directive dictate that if this is done by a taxable person for his private use or for that of his staff, or where these goods are disposed free of charge or, more generally, where they are applied for purposes other than those of his business, these applications/disposals shall be treated as a supply of goods for consideration, where the VAT on those goods or the component parts thereof was wholly or partly deductible. With regard to services, Article 26 of the EU VAT Directive brings about that the use of goods forming part of the assets of a business for the private use of a taxable person or of his staff or, more generally, for purposes other than those of his business, where the VAT on such goods was wholly or partly deductible shall be treated as a supply of services for consideration. This also applies to the supply of services carried out free of charge by a taxable person for his private use or for that of his staff or, more generally, for purposes other than those of his business.

In my view, the application or disposal of goods for no consideration is always covered by the relevant provision, because these transactions are covered by the Union concept of ‘supply of a good’ (the transfer of the right to dispose of the good as owner). For services, and especially the use of business assets, this may be considered debatable.

On the one hand, it can be argued that the ‘use’ of (potential) customers of a building in which a retailer has established his shop, including lifts and toilets for (potential) customers, should not be considered a (free) supply in the sense of the above provisions. Advocate General Kokott (of the Court of Justice of the EU) holds this view. In her opinions in the Sveda case, she discusses situation where a taxable business allowed people to make use of a footpath,2 that they had constructed in nature, for no consideration. Kokott holds that “…the footpath was used by the taxable person itself to conduct its own economic sales activity. The involvement of an independent third party, the municipality, which, with the services received, pursues its own purposes of water supply, makes this case different from Sveda. Acquiescence in relation to use of the footpath for one’s own business (comparable to Sveda) is not an independent supply to a third party, but merely part of the taxable sales”.3 Allowing people to park their car in a car park that belongs to a shopping centre, or allowing them to walk through the heated shop for free is not a supply (as such) under this rationale. Kokott considers this a ‘dependent ancillary supply’, which means that “it does not constitute for customers an end in itself but a means of better enjoying the principal service supplied”.4 I find that strange, because in my view, something that is not a supply in itself cannot be ancillary to other supplies. It is not a supply. Also, in order for a supply to be ancillary to another (‘main’) supply, there has to be a main supply to the same person as the ancillary supply (see Chapter 4). In the case of the footpath, there will be people that use the path without purchasing anything form its owner. The same applies to car parks and shops: they are not only used by people that actually make a purchase. If they can only be used by people that make a purchase, I agree with Kokott. Also, in my view, it is practically impossible to establish the exact tipping point where use of a business asset would transform from a non-supply to a supply, even though that is not a real technical argument against applying this rationale.

On the other hand, it can be argued that all use of business assets should be qualified as a supply. Even Kokott seems to adhere to this view where she holds that this type of use should be considered a ‘dependent ancillary supply’ (see above), i.e. a supply. In my view, the use of the path as referred to by Kokott as well as the use of the building and the car park all qualify as supplies. However, this use of the business assets should not be taxed because the business assets are not used for purposes other than those of the business. The element of ‘private consumption’ is insignificant compared to the business use. Still, in my view, this type of use should be considered a supply for VAT purposes. This may also explain why, contrary to the provision that taxes the application of goods, the relevant provision for taxing the use of business assets does not include the words “…or their disposal (use in this case, JB) free of charge, or…”. By not including that, a discussion about ‘free use for business purposes’ is avoided.5