9.3.1 The supply of a right as such and the supply of a right to a future supply

First, a distinction can be made between agreements where the right ‘as such’ is the object or purpose of a transaction, as opposed to transactions concerning the supply of a right to a future transaction, where the future supply of goods or services is the actual object of the transaction. In the latter case, the payment for such rights may – if all relevant requirements, which I will elaborate on, are met – be qualified as a ‘prepayment’.

From an EU VAT perspective, it is relevant to establish whether a transaction constitutes a payment for a future supply or the supply of a right.1 If a payment is agreed and made before an agreed supply is made, this payment may qualify as a prepayment. A prepayment triggers a mechanism in VAT that causes the VAT on the future transaction to become due (payable to the tax authorities) before the actual supply takes place. I will elaborate further on this below. If a prepayment is made for a supply that is, in the end, not (fully) fulfilled, it can be argued that the VAT that has become due as a result of paying/receiving the prepayment should be adjusted (repaid to the taxable person), because only certain specific transactions are subject to VAT,2 and the payment for a transaction as such is not. In the terms of the EU VAT Directive, if a payment qualifies as a ‘prepayment’ for VAT, the VAT shall become chargeable on receipt of the payment and on the amount received, even though the ‘chargeable event’ has not (yet) occurred.3 If a payment is made for a future transaction that is insufficiently well defined, the payment in itself does not trigger any VAT consequences. If, on the other hand, a ‘right as such’ is transferred (for consideration), the VAT on that supply becomes chargeable when (and because) that service is supplied.4 The VAT treatment of ‘breakage’, or the amount paid before a supply is made and that is kept by the recipient even though no supply is made, is also a relevant when looking at the difference between the supply of a right as such and the supply of the right to a future supply. I will further elaborate on breakage in Section 9.5.2.