Einde inhoudsopgave
The EU VAT Treatment of Vouchers (FM nr. 157) 2019/7.2.1.3
7.2.1.3 Bartering because of economic benefit
Dr. J.B.O. Bijl, datum 01-05-2019
- Datum
01-05-2019
- Auteur
Dr. J.B.O. Bijl
- JCDI
JCDI:ADS595941:1
- Vakgebied(en)
Omzetbelasting / Levering van goederen en diensten
Omzetbelasting / Bijzondere OB-regelingen
Omzetbelasting / Vergoeding
Voetnoten
Voetnoten
For the EU VAT definition of ‘open market value, see Article 72 of the EU VAT Directive: “(...) ‘open market value’ shall mean the full amount that, in order to obtain the goods or services in question at that time, a customer at the same marketing stage at which the supply of goods or services takes place, would have to pay, under conditions of fair competition, to a supplier at arm’s length (...)”
Of course, if agencies are involved, their costs, the cost of cleaning, meeting the users with a key, insurance etc. should also be taken into account.
For a taxable person using Bitcion for payment, the ‘supply of the Bitcoin’ could possibly be considered a VAT exempt transaction (as part of a barter transaction).
For elaborate research on taxation of virtual currency, including the indirect tax treatment thereof, see A.M. Bal, Taxation, virtual currency and blockchain, Wolters Kluwer 2019, and more specifically Chapters 7-9 (pp. 157-250).
For a more elaborate view on the VAT treatment of wages in kind, see W.J. Blokland, Taxing Employee Benefits in Kind under EU VAT, 22 Int. VAT Monitor 2, p. 98-104 (2011), Journals IBFD.
For the purpose of this section, I will use the term ‘economic benefit’ for situations where the total cost of paying in kind (i.e. the cost of the good(s) or service(s) used for payment) is lower than the asking price in money of the good(s) and/or service(s) that are to be obtained (or the ‘open market value’1). If a business produces goods or services, the cost of these products will usually be lower than the (advertised) selling price or open market value of these products. Therefore, using a product as payment/consideration where the open market price of that product is advertised/used as the value to come to a barter transaction can be economically beneficial.
The ‘margin’ between the cost and the open market value of the goods or services used as payment is the value of the actual ‘economic benefit’ of such barter transactions. I will illustrate this with the following example, where in the first diagram Company X purchases a good (symbolised by the star) and pays Euro 100 for that good (payment is symbolised by the red arrow), and where in the second diagram the same Company X purchases the same good paying (in kind) with a good (symbolised by the triangle) that it purchased for Euro 80:
In this example, spending/paying Euro 80 eventually gets Company X the same product from Company C as paying Euro 100 for it in cash. The ‘economic benefit’ for Company X in this example is Euro 20 (not taking VAT into account).
Another ‘economically beneficial’ outcome would occur where Company X would buy materials/components from Company A for Euro 75 which it would convert to a new product by adding own labour (and other elements) with a value (cost) of Euro 10, to produce a new good or service that it then trades for the product it wants to obtain from Company C. In that case, the economic benefit of this transaction for Company X would be Euro 15.
Where ‘absence of money’ is a reason for bartering as such, ‘economic benefit’ is a reason for choosing bartering instead of using money/cash.
Examples of bartering for economic benefit
An example of this type of barter is the trade between countries of goods (usually commodities) that they grow or produce in affluence for other commodities, services (e.g. specialist expertise), or other payments in kind (e.g. infrastructural works).
Home swapping is another example of this type of bartering that is very common between private individuals. In this example, the ‘cost’ of renting a holiday accommodation is the price of allowing someone else to use your (empty) house during your holiday.2 In this latter type of barter transaction there is no transfer of ownership of/legal title to goods. For businesses (or people) owning assets that they (temporarily) don’t use, the cost of allowing other parties to use those assets in return for goods or services is often lower than paying for those goods or services in cash.
Another example is making payments using Bitcoin (or other forms of crypto currency). In countries where Bitcoin is not considered legal tender, payment using Bitcoin is, by definition, a barter transaction.3 The economic benefit in this case obviously depends on the ‘exchange rate’ of the Bitcoin at the time of use/conversion. Because the VAT aspects of Bitcoin are very specific, and because the use of Bitcoin is not a promotional activity as such, this VAT treatment of Bitcoin (and other crypto currencies) is not included in this research.4
Making available or allowing a business access to and use of data generated by a person as a customer in return for specific (personalised) and changing discounts on products or allowing discounts in return for customer loyalty can be considered an example of a barter transaction as promotional activities. I will elaborate on this specific type of barter transaction in Section 7.10.
Another frequently occurring type of barter transactions are ‘wages in kind’, where employees not only receive salaries in cash, but also in kind. Examples are (the private use of) company cars, company phones and phone subscriptions, payments in shares or options etc. In many countries, these payments in kind are considered (part of the taxable) salary, and thus considered to be paid in return for labour.5
Even though strengthening a business relationship by entering into a (longer term) barter deal may be considered an economic benefit, it may also be partly based on emotion. A car manufacturer that builds or strengthens a business relationship by sponsoring the local sports club through providing the star players with free cars in return for shirt advertisement could also demonstrate an emotional connection between the owner of the car manufacturing business and the local team (e.g. as a fan). Can this ‘emotional’ element be a reason for entering into a bargain transaction? I will answer this question in the next section, demonstrating that an ‘emotional’ element to a barter transaction does not – as such – affect the VAT treatment of the transaction, unless specific VAT rules dictate otherwise.
Economic benefit as a reason for bartering is relevant for this research, because the businesses that use bartering as a form of promotional activity will usually do this for an economic benefit. The economic benefit may come from the actual specific barter transaction or from the fact that the barter transaction is an element in an effort to create or strengthen a business-consumer relationship.