8.4 The VAT treatment of the distribution of the ‘free lottery’ prizes

Because no consideration is charged or paid for the distribution of the prizes, the distribution can only be taxed if it is ‘treated as a supply of goods or services for consideration’ under Articles 16 and 26 of the EU VAT Directive. For goods, this provision only applies insofar as the VAT on those goods or the component parts thereof was wholly or partly deducted by the taxable person.1 For services, VAT deduction is not a requirement, but the distribution of these services is only treated as a supply of services for consideration if the supply is made 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.2

If the lottery is organised as a promotional activity, the taxable person does so for the purpose of his business. This means that in that case, no VAT is due on the distribution of services.

This is different for goods, as I describe in Chapter 6. The distribution of goods as prize for a lottery where the lottery tickets were sold for consideration, the VAT on the purchase of the goods will not have been deducted and therefore no VAT is due on the distribution of these goods. If a business has purchased goods in the course of its normal (taxed) business activities and at a later stage decides to use these goods for distribution as lottery prizes, VAT will be due (insofar as VAT was deducted) because the goods are, in the end, used (first and finally) for VAT exempt activities. With regard to the distribution of goods as prizes for a free lottery, VAT is due on the distribution insofar as the VAT on those goods or the component parts thereof was wholly or partly deducted by the taxable person. This will generally be the case if such lotteries are organised by businesses that (mainly or only) perform activities that are not VAT exempt, which includes most retail businesses.