3.3.3 The remuneration has to constitute the value actually given in return for the supply

Based on CJEU case law, the consideration should not only be received in return for a supply, but the remuneration received by the provider of the service should constitute the value actually given in return for the service supplied to the recipient.1 This does, in my view, not mean that the monetary value of the consideration should be (more or less) equal to the monetary value of the supply for it to qualify as a consideration for VAT purposes, but only that everything that the supplier receives for his supply under the agreement is the consideration, i.e. the subjective value in each specific case and not a value estimated according to objective criteria.2 I find confirmation of my view on this in an opinion of Mr. Fennelly who, as Advocate General to the CJEU, in the Cooperatieve Aardappelenbewaarplaats-case held that “the use of the word ‘subjective’ can be confusing but, in my opinion, is intended to exclude any supposed valuation independent of that adopted by the parties to the transaction”.3 I also refer to the opinion of Mr Léger, Advocate General to the CJEU, who in the Madgett and Baldwin-case held that “that is an expression of the idea that it is the parties to the contract alone who decide the price which can be charged by reference to the criteria they consider appropriate. It may no doubt be supposed that, out of concern for economic efficiency, they will set prices by reference to objective factors, but the taxable amount cannot be determined on the basis of hypothetical reasonable behaviour. What must prevail is the reality of the economic operation to be taxed”.4 This is what the CJEU, in my view, means when it holds that the payment received is “the real and effective counter-value of the supply”.5 Confirmation of my view can also be found in the CJEU’s ruling in the Lajvér case, where it rules that “…It is for the referring court to determine whether the amount of the fee received or to be received, qua consideration, means that there exists a direct link between the services supplied or to be supplied and that consideration, and consequently allows those services to be classified as being effected for consideration. In particular, the referring court will have to ascertain that the fee which the applicants in the main proceedings are planning to charge does not only partly remunerate the services supplied or to be supplied and that its amount has not been determined as a result of other possible factors that could, depending on the circumstances, call into question the direct link between the services supplied and the consideration”.6 The last sentence implies that if the amount received is not only charged/paid to cover (part of) the costs of the supply but has also been determined based on other factors that are not related to the supply, e.g. the fact that only some of the recipients of the activities pay a contribution, the amount of which is based on their income, the payment may not qualify as consideration from a VAT perspective.7^,8

Also, in general, the fact that the price paid for an economic transaction is higher or lower than the cost price is irrelevant to the question whether a transaction is to be regarded as a ‘transaction effected for consideration’. The latter concept requires only that there be a direct link between the supply of goods or the provision of services and the consideration actually received by the taxable person.9

If a supplier receives more than the agreed amount in return for his supply, the additional payment is considered part of the consideration. This can be different if the additional payment is not directly linked to the supply between the ‘contracting parties’, e.g. personal tips paid to a waiter but not as an added amount to the bill, to be redistributed between the members of the restaurant staff.10^,11

As mentioned, the remuneration received by the provider of the supply should constitute the value actually given in return for the service supplied to the recipient. This does not mean that the monetary value of the consideration should be (more or less) equal to the monetary value of the supply for it to qualify as a consideration for VAT purposes, but only that everything that the supplier receives for his supply under the agreement is the consideration, i.e. the subjective value in each specific case and not a value estimated according to objective criteria. Another requirement for a payment to be consideration for a supply is that it should be capable of being expressed in money.12 In my view, this does not mean that this monetary value must reflect the actual value or fair market value of the consideration, but only that parties have to agree that the consideration has a specifically agreed value and not a ‘value estimated according to objective criteria’. Also, the VAT amount due on a supply of goods or services can, as a general rule, only be determined on the basis of a specifically agreed monetary value of the consideration. Only by ensuring that a specifically agreed consideration is paid for a supply, the direct link between the supply and the consideration can be ascertained. Again, this does not mean that no direct link exists when the price (the monetary value of the consideration) does not correspond to the ‘economic value’ or ‘fair market value’ of the supply. However, in some cases the difference between the operating costs and the sums received in return for the services offered may suggest that the payment must be regarded more as a fee than as consideration. In those cases, the lack of symmetry means that the supply cannot be regarded as an economic activity within the meaning of Article 9(1) of the EU VAT Directive.13 I will elaborate on this in Section 3.5.2.

I find more confirmation of my view that the monetary value of a consideration does not have to correspond to the monetary value of a supply in the Kennemer Golf-case, where the CJEU ruled that a fixed contribution paid by members of a sports club, which was the same amount irrespective of whether they used the facilities often or not at all, should be considered a consideration.14 The payment was made for the fact that the sports club makes its facilities available to its members, whether they use them or not. The CJEU considered this sufficient to decide that a direct link existed between the payments and the service provided by the sports club. The CJEU confirmed this view in later cases.15

As I explained before, for establishing the direct link between the supply and the agreed consideration it is irrelevant whether the consideration is paid by the recipient of the supply or by another party, e.g. a situation where it is not the recipient of the supply but a ‘third party’ that pays for (part of) the supply. The price and the supply are still agreed between the relevant parties. The agreed consideration is just (fully or partially) paid by someone else than the recipient. This third party could be a financing company providing (part) of the funding for the transaction, or party that is related to the purchaser and that wishes to (partially) pay the transaction for him or her. As mentioned, the consideration is still received by the supplier in return for the supply made to the recipient, who is the party that he agreed the supply as well as the (amount of the) consideration with. This is different from factoring. Under factoring arrangements, a business that makes supplies for consideration sells (some of) its receivables to a factor, who will normally pay that business less than the actual amount originally invoiced. The payments made by the customers of the business will be made to the factor. The payments by this factor are not consideration for the supplies by the business, because they are based on a separate agreement entailing the transfer and collection of amounts payable. From a VAT perspective, the payment by the business’ customer to the factor is (still) considered the actual payment for the supply made by the business to that customer.16

The VAT treatment of payments by third parties can be different from the above for certain types of subsidies, where the recipient of the goods or services is unaware of the nature and content (or even existence) of the agreement between the provider of the subsidy and the supplier. Still, a direct link may still exist between the subsidies paid/received and the supplies made by the subsidised business. Even though I will not elaborate on the VAT treatment of subsidies, it is relevant to establish here that one of the criteria to treat a subsidy as subject to VAT is the existence of a direct link between the subsidy and the activity performed by the subsidised taxable person, or the subsidy and the price of the supply.17 For a comprehensive study on subsidies and VAT I refer to ‘Subsidies en BTW in de Europese Unie’ (Subsidies and VAT in the European Union, JB) by Van der Paardt.18

In conclusion, for a payment made in relation to a supply to be a consideration for that supply, the (amount of the) consideration must be agreed and paid in return for that supply. If the reason for paying (also) has other reasons that the supply, the payment may not be consideration for the supply or at least not the whole amount of the payment.19 As a general rule, for determining whether a payment is a consideration for a supply it is irrelevant whether the monetary value of the payment corresponds to the monetary value of the supply.