6.4 Exceptions to the main rule: consumption without adjustment(?)

Before I investigate whether the relevant provisions in the EU VAT Directive that deal with the VAT treatment of transactions that are subject to VAT also apply to supplies that are deemed to be made for consideration, I will examine the exceptions to the rules that require taxation of these supplies. In some cases, where the personal benefit derived from a free supply is of only secondary importance compared to the needs of the business1 or merely accessory to the requirements of the business,2 the supplies should not be taxed, even though there is an element of private consumption.

From the beginning, it was clear that certain free supplies should not be taxed, even though these would lead to (a certain degree of (private)) consumption. This has been codified for the supply of free gifts and samples3 and is based on CJEU case law for other supplies that are free of charge and that are not considered to be made for purposes other than those of the business, even though some degree of (private) consumption takes place.4

According to the CJEU, the fact that there is a valid business reason for making free supplies is not sufficient to avoid taxation.5 This means that there is a difference in VAT treatment of goods and services provided free of charge for business purposes where an element of consumption is still acknowledged and supplies goods and services for no consideration where the personal benefit that is a result of that supply is considered of only secondary importance compared to the needs of the business6 or merely accessory to the requirements of the business.7 The first type of supply is taxed, the second type is not.