Chapter 3 Transactions that are subject to VAT and economic activities

This research aims to cover the (EU) VAT treatment of vouchers (or voucher transactions) in the context of promotional activities. Transactions only have VAT consequences if they are inside the scope of the relevant VAT rules and regulations.1 Many transactions and activities are outside the scope of (EU) VAT. Only economic activities are within the scope of VAT, and only taxable economic transactions can be subject to VAT. However, activities or events exist that are not taxable transactions but that are considered economic activities. An example of this would be the purchase of a business asset by a taxable person acting as such for use for his business activities. Also, agreeing to a payment (and paying) for a supply of goods or services does not necessarily mean that the supply is an economic activity that is subject to VAT. It can be that no (sufficiently) direct link exists between the goods or services supplied or to be supplied and the agreed payment, which would mean that the supply of those goods or services cannot be classified as being effected for consideration from an EU VAT perspective.2 It can also be that the taxable person that performs the supply for which he receives an agreed payment, is not acting in his capacity of taxable person (‘as such’), e.g. because he’s not performing an economic activity.3 It can also be that the supplier does not qualify as a taxable person at all. If a private individual would decide to sell her bicycle to another private individual, this would constitute a supply of a good for consideration, but not performed by a taxable person (acting as such) and therefore neither an economic activity nor an activity that is subject to VAT.

The relevance, from a VAT perspective and in relation to my research, of whether or not a supply is made for consideration, and whether that supply qualifies as an economic activity, is that if certain transaction are not made ‘for consideration’, they can still be considered ‘economic activities’ and even be subject to VAT (i.e. taxed) by treating these supplies as if they are made for consideration. Goods and services are often given away ‘for free’ as part of promotional activities and through the use of vouchers, which makes the VAT treatment of those transactions relevant to this research. This means that whenever a supply is made it is relevant to determine whether it is made for consideration, whether the supply is subject to VAT and whether that supply qualifies as an economic activity.

Only supplies of goods and services that are not made for consideration (i.e. that are supplied ‘free of charge’) but that do qualify as economic activities, may be treated as if they were made for consideration under the EU VAT system.4,5 Supplies that do not qualify as economic activities cannot be treated ‘as if they were made for consideration’. For these transactions, other VAT adjustment systems may have to be applied if these goods or services are used, applied or disposed free of charge. I will elaborate on how certain deployment or use of goods and services free of charge may be subject to VAT. For this chapter, a brief description suffices, which I will provide here.

Under Article 16 of the EU VAT Directive, the application by a taxable person of business assets (goods) for his private use or for that of his staff, or their disposal free of charge or, more generally, their application for purposes other than those of his business, 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. However, this does not apply to the application of goods for business use as samples or as gifts of small value.6 Also, under Article 26 of the EU VAT Directive, the use of business assets (goods) 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. Lastly, 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, shall also be treated as a supply of services for consideration. For these latter services, the rules do not stipulate that VAT on costs was deducted.7

Under the current EU VAT rules and regulations and as a result of case law from the CJEU, a number of requirements exist that need to be met for a supply to be subject to VAT.

In practice, ‘transactions that are subject to VAT’ are often referred to as ‘taxable transactions’. Under the EU VAT Directive, only four types of well-defined transactions are considered ‘subject to VAT’.8 These transactions are only actually taxable and therefore potentially subject to VAT if they qualify as ‘economic activities’.9

It is not always easy to establish whether vouchers, or the goods or services or the preferential treatment that the vouchers can be used for, are provided free of charge or for consideration. Under the current VAT rules, it can be argued that issuing free SPVs10 could lead to taxation at the time of issuing or transferring the SPVs, even though I am of the opinion that this should not be the case.11 It is also relevant to establish whether a voucher transaction was indeed performed for free, because the facts of a voucher transaction could, for example, lead to the conclusion that, actually, a consideration in kind was paid for the vouchers.12 The VAT treatment of vouchers that are supplied free of charge depends on different factors, as does the VAT treatment of the supply of goods or services in return for free vouchers. Using vouchers should not affect this ‘direct link’ between a payment and a (subsequent) supply.

I will now elaborate on the concepts of ‘transaction subject to VAT’ and ‘economic activity’.