4.2.1.1 Absorption

Some supplies can be considered ancillary to other transactions (the ‘principal transactions’). These transactions do not constitute for customers an aim in itself, but a means of better enjoying the principal transactions provided by the supplier.1

Under the rules as laid down by the CJEU, this can be the case for transactions that take up a small proportion of the total price compared to the principal transaction or that can be carried out without a substantial effect on the total price charged and where these transactions are transactions ‘traditionally’ performed by the provider and should not go beyond the transactions ‘traditionally’ provided by the provider.

An example of such ancillary services is any help-line offered as a support where customers have questions or need specific help with regard to the (‘main’) goods and/or services they purchased. It can also be argued that in some cases, the transportation of goods purchased on-line should be considered ancillary to the supply of the goods, since the transportation is not an aim in itself for the customer, but a means of making on-line shopping possible. This could be different if a specific price is agreed for extra fast delivery, because then it can be argued that speed of delivery, or added convenience, has become an aim in itself for the customer.

The fact that a single price is charged is not considered decisive by the CJEU, although if the supply consists of several elements for a single price, the single price may suggest that there is a single supply.2

Even though in the English language, the terms ‘ancillary’ and ‘incidental’ are not the same, in provisions and case law where these separate terms are used in English, other language versions contain words for both that are the same or very similar.3 A similar ‘blended’ use of the terms ‘ancillary’ and ‘incidental’ can be found in the English language version of the EU VAT Directive: where certain ‘incidental’ transactions are excluded from the calculation of the deductible proportion,4 these exact same transactions are excluded from calculating a reference amount for the purpose of applying a specific arrangement if they are ‘ancillary’ transactions.5

Does this mean that, for determining whether some supplies should be ‘absorbed’ into other supplies, the CJEU case law concerning the explanation of the concept of ‘incidental’ is also relevant? In my view, the answer to this question is ‘no’. Based on the Explanatory Memorandum to the Sixth EU VAT Directive6 as well as the relevant CJEU case law,7 the criteria relevant for determining whether a transaction should be considered ‘incidental’ are:

These criteria can, in my view, not all be applied one-on-one for determining whether a transaction is ‘ancillary’ to another transaction in the sense of ‘subordinate’ and ‘not an aim in itself, but a means of better enjoying the main transaction’.

Absorption requires the ancillary supply to be a ‘means of better enjoying the principal supply’. A towel or a DVD supplied by a petrol station to loyal customers are, in my view, not means of better enjoying the supply of the petrol. In fact, they have nothing to do with the enjoyment/actual use of petrol. If the petrol station would supply plastic gloves for free to protect the hands of the customers when they fill up their vehicles with petrol, the supply of this glove is, in my view, an example of the supply of a ‘means of better enjoying the principal supply’.8 I would argue that the same applies to the free use of the facilities in the petrol station as well as the free use of the squeegee for cleaning the vehicle’s windows, since these ‘supplies’ are all connected to or related to the original supply and can be considered ‘means of better enjoying the principal supply’. Free gifts such as the towel or the DVD in the above example are supplies that make the purchase of the main supply ‘more enjoyable’ in the sense of making it ‘more attractive’ to make that specific purchase. However, they are not meant to facilitate the purchaser in the sense better enjoying the main supply. The French and German language versions of the relevant CJEU case law are clearer on this point. A literal translation of the relevant section of the French cases would be ‘a means of benefiting from the main supply under the optimal conditions’9. A translation of the relevant part of the German language version is ‘a means for consuming the main supply under optimal conditions’.10 In my view, presents for loyal customers are also not ‘one’ with the main supply from an economic point of view. It would, in the words of the CJEU, not be ‘artificial’ to split these supplies and the functioning of the VAT system would not be distorted by splitting them.11

The above implies, in my view, that the relevant elements should be ‘functionally connected’ to the main supply in order to be absorbed into the main supply because they are ancillary to it. This view is supported by the fact that absorption is a species of cases where, according to the CJEU, there is a multiple-element supply that comprises a single transaction from an economic point of view.12