6.6.1 Place of supply

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 Using that as basis for the adjustment, it would make sense to tax these transactions (where possible) at the place of actual consumption, which would be achieved by applying the relevant ‘place-of-supply-rules’ to these transactions. On the other hand, if the initial purchase would have been made by an end-consumer that is unable to deduct VAT, adjusting the VAT in the same country as where the VAT was originally charged makes sense. In my view, since the provisions aim to adjust the earlier deduction, taxation should take place in the same jurisdiction (country) as the initial deduction, implying that the place of supply rules should not be applied to these transactions. This can be in line with the aim of the EU VAT which is taxing expenditure on local private consumption, working under the assumption that the application should be treated the same as the situation where the business applying the assets for consumption purposes should be compared to a consumer purchasing the same goods in the same jurisdiction.

Some EU Member States do not agree with the view that place-of-supply rules do not apply to the provisions in Articles 16 and 26. For example, Germany has implemented a specific rule for determining the place of supply of free goods and services leading to private consumption that are treated as taxable transactions. Under the relevant German provision, which is not an implementation of any provision in the EU VAT Directive, these services are deemed to be performed from where the supplier of the services is established or from the fixed establishment used for providing these services.2

However, the fact that no such provision exists in the EU VAT Directive as well as my comments above – i.e. the fact that the provisions are meant to undo VAT deduction – indicate to me that actually, a new provision should be included in the EU VAT Directive, ensuring that the ‘place of supply’ of such transactions is the country that refunded the VAT on the purchase of the relevant goods or services. This could lead to difficulties where a composite transaction were to be applied for private purposes, if the various elements for this composite supply would be procured from different countries. In those cases, the transaction should be taxed in the country that allowed VAT deduction on the purchase of the main element of the composite supply in cases of absorption (see Section 4.2.1.1). I appreciate that this could lead to administrative issues like having to VAT register in the country where VAT deduction was claimed. Therefore, it could be a more practical option to apply the ‘general rule’ for determining the place of supply of services from Article 45 of the EU VAT Directive, i.e. the place where the supplier has established his business or has a fixed establishment from where he performs his services. In case of amalgamation (see Section 4.2.1.2), the same ‘general rule’ should be applied.