6.3.3.5 Do the ‘private use allows full VAT deduction and subsequent taxation of that private use’-provisions also apply to non-capital goods?

It could be argued that the rules as described above shouldn’t apply to goods and services that are consumed immediately, because that would unnecessarily complicate matters, for example in a situation where VAT on the purchase price of a good is deducted in a specific taxable period, where the use or application of that same good may have to be taxed in the same taxable period.1 In my view, the rules should also apply to non-capital goods.

The right of deduction as laid down in the EU VAT Directive, as an integral part of the VAT scheme, is a fundamental principle underlying the common system of VAT and in principle may not be limited.2 I see no reason to limit the system of deduction of VAT as described above to capital goods. These rules should apply to all situations where any type of goods (or services) are acquired the use of which cannot be (fully) determined at the time of the purchase (or at the time that the VAT on incurred on those goods or services is deductible). In my view, the proper way3 to ensure that the actual private use of those goods is taxed is by first allowing full deduction and to subsequently adjust that deduction for the private use of the goods, e.g. by taxing the private use. Therefore, the above rules should apply to any goods (or services) for which the actual proportion of business and private use cannot be determined upfront.

My view that the provisions entailing (full) deduction followed by the taxation of private use also apply to non-capital goods is supported by the fact that, under the EU VAT rules, the relevant provision does not mention ‘capital goods’ or a similar concept, but simply mentions ‘goods forming part of the assets of a business’. Assets of a business are the goods and intangibles it owns that have a specific value.4

Furthermore, according to the CJEU, the purpose of the provisions regarding taxation of private use is to ensure equal treatment as between a taxable person who applies goods or services for his own private use or for that of his staff and a final consumer who acquires goods or services of the same type.5 The CJEU clearly refers to goods and services that can be purchased by final consumers, which means that the provision does not only apply to capital goods. According to the Explanatory Memorandum to the relevant provision in the Sixth EU VAT Directive, the aim achieved by the relevant provision could have been attained by means of adjustments to deductions already made, but the technique of treating these transactions as taxable supplies was chosen for reasons of impartiality and simplicity.6 This reasoning is not confined to capital goods but can also be applied to other goods (and to services).

Also, under the same provision, the application of goods as samples and as gifts of small value are explicitly excluded from the treatment as a supply for consideration. To me, this is a clear indication that without this specific exclusion, the application of those samples and gifts of small value would be taxed. Samples and gifts of small value are usually not capital goods.

Moreover, sufficient CJEU case law exists about the application of the relevant provision to non-capital goods in which the described VAT consequences are indeed deemed applicable, such as copies of vinyl records, cassette tapes and compact discs as well as the supply of food and drinks during meetings.7 Therefore, the rules regarding initial full VAT deduction followed by taxation of consumption also apply to non-capital goods.

Having established that the above rules regarding deduction and subsequent taxation of private use should also apply to non-capital goods, I would argue that the rules should be applied to all goods and not only to goods that can be used over a longer period of time during which the proportion of business versus private use can change over time. As an example, a shopkeeper that purchases 100 packets of treacle waffles biscuits to sell in his shop can deduct all VAT incurred on this purchase. When he takes one of the packets home for private consumption, this will be taxed under the relevant provisions.8