3.3 Supply (of goods or services) made for consideration

In ordinary language, ‘consideration’ usually means payment for a service or a supply of goods.1 Consideration, therefore, implies reciprocity (payment for something in return) or some form of exchange.2 This would require two parties to agree to make a supply of a good and/or a service where the other party supplies something in return, which can be money, goods and/or services. In my view, there can be no ‘reciprocal’ performance, or a ‘quid pro quo’3 without parties to that performance agreeing on the terms (i.e. on the supply and the consideration). The relation between the ‘quid’ (something) and the ‘quo’ (something) in a ‘quid pro quo’ doesn’t exists without the ‘pro’ (in return for), and ‘in exchange for’ implies that parties are in agreement, because without the agreement, either supply is not connected with the other. In a reciprocal, or quid pro quo exchange, one transfer of goods or services is contingent upon the other transfer. The very definition of quid pro quo, ‘something in exchange for something’, implies that a mutually beneficial arrangement has been reached. Reaching an arrangement means agreeing on something. Also, ‘exchange’ implies agreement between parties – in my view, there is no such thing as ‘unilateral exchange’.

Even though from an economic perspective it can be argued that a business will never do anything ‘for free’,4 in my view, a consideration for a supply requires a direct link between the supply and the consideration. When a business makes a supply ‘for free’, this does not mean that he doesn’t endeavour to ensure that income covers expenditure.5 It only means that no ‘direct’ consideration was paid (or received) for this supply. In my view, reciprocity, or ‘quid pro quo’, requires that parties actually specifically agree to a certain supply and a specific consideration. This is also the approach taken by the CJEU.

In the EU VAT Directive, the concept of ‘consideration’ serves two main purposes. First, transactions can only be subject to VAT if they are performed ‘for consideration’.6 Some supplies of goods or services that are made ‘free of charge’,7 are treated as if performed for consideration, to ensure equal treatment as between a taxable person who applies goods for his own private use or that of his staff, on the one hand, and a final consumer who applies goods for his own private use or for that of his staff, on the other.8 In this research, I will investigate the VAT treatment of the application or use of business assets for private purposes, or their disposal free of charge or, more generally, their application for purposes other than those of his business, and the supply of services carried out free of charge for private use or, more generally, for purposes other than those of his business,9 since ‘promotional activities’ can have the shape of such transactions.

Second, the concept of ‘consideration’ is used for determining the taxable amount, i.e. the amount on which the amount of VAT due should be based (‘…everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply…’).10

Going back to the concept of ‘consideration’ as a requirement for a transaction to be subject to tax: in the English language version of the two main predecessors of the current EU VAT Directive11 as well as in the current Directive, the term ‘consideration’ is used for that latter purpose, i.e. for determining the taxable amount. In the English language version of the Second Directive, supplies were subject to VAT if they were performed ‘against payment’, whereas in the English language versions of the subsequent Directives, this was changed to ‘for consideration’.

This raises the question whether the original (English language) requirement for a transaction to be subject to VAT, being that it had to be made against payment, has changed by changing the ‘against payment’ to ‘for consideration’. In my view, ‘against payment’ and ‘for consideration’ in the sense of the relevant provisions of the EU VAT rules should be interpreted the same.

Grounds for that view can be found in the fact that the expression used in either provision (for determining when a transaction is subject to VAT and for determining the taxable amount) was not changed in other language versions of the VAT Directive(s).12 Also, no explanation was provided as to why this change was made in the English language version of that expression, where an explanation would have been appropriate if a true ‘change’ had been intended. In my view, the change should only be considered a change in wording, not in content or meaning of the expression.13 Further, the CJEU’s interpretation of the expression used in the different versions of the Directive has not changed – in fact, for the interpretation of the provision in the Sixth VAT Directive (‘for consideration’), the CJEU refers to and uses its own interpretation of the relevant provision in the Second VAT Directive (‘against payment’).14

There is no definition of the concept of ‘(for) consideration’ as ‘(against) payment’ in the EU VAT Directive. For determining the taxable base, ‘the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply’.15 This implies that ‘consideration’ is obtained in return for the supply, which suggests reciprocity.

Under CJEU case law, a supply is only made ‘for consideration’ if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient.16 The elements that are required for a payment to qualify as consideration are, therefore:

I will now discuss these elements.