7.2.1.1 Bartering in absence of money or because of different valuations of money as such

If there is no money (e.g. due to the absence of a (stable) monetary system) and someone wants a good that is owned or a service that can be performed by someone else, this can usually only be obtained by trading it for something the person has that the other person wants in return.

Also, there was a time when the value of legal tender was determined by the actual value of the commodity of which the tender was made (e.g. gold and silver coins), which was basically barter trade using ‘in-between goods’ (currency) with an agreed fixed value. This was called ‘commodity money’1 as opposed to the ‘representative money’ that is used in most economies nowadays.2

Bartering also occurs where the two parties involved in a transaction attribute a different value to money as such. A historic example is the trade of oil and other commodities between the former Soviet Union and Eastern bloc countries and the capitalist West. In the former Soviet Union and Eastern bloc countries, money had a different value than in the Western countries, because in the former Soviet Union and Eastern bloc countries most necessities were provided for by the state and money could not be used to buy much anyway, which was completely different in the Western countries. The former Soviet Union and Eastern bloc countries (or: the people and businesses in these countries) therefore did not need or use money for the same reasons as (the people and the businesses in) the West. As a result, trade between the former East and West was often conducted in the form of barter transactions.3

Another example of a barter transaction based on the difference in valuation of money is a European art dealer who, on a journey through a tropical rainforest, comes across a priceless artefact that he could sell for a lot of money in his art gallery in Europe. The local owner of the artefact is not interested in money and will only part with it in return for a healthy cow. The art dealer manages to get to the nearest village, 80 kilometres away, and buys a cow for the equivalent of 130 Euro. He gets the cow back to the owner of the artefact and the deal is concluded. This transaction could only take place because from the perspective of the owner of the artefact, a cow is much more valuable than any amount of money.4

Another way of looking at the reason for this second barter transaction to take place could be the inequality between the parties involved, which is abused by one of them. However, it is unlikely that the original owner of the artefact will feel ‘cheated’, unless he will learn that, from the perspective of the purchaser of the artefact, there was no equality in the value of the cow and the artefact (as is also clear from the saying “one man’s trash is another man’s treasure”).5

Because in this research I focus on the VAT consequences of promotional activities under the rules applicable in the EU, I will assume that bartering because of the absence of money or a difference in perception of the value of it will not occur. Therefore, this reason for bartering is not relevant for this research.