The EU VAT Treatment of Vouchers (FM nr. 157) 2019/2.4.2:2.4.2 VAT: a tax on consumer expenditure

The EU VAT Treatment of Vouchers (FM nr. 157) 2019/2.4.2

2.4.2 VAT: a tax on consumer expenditure

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

However, there is a compelling argument for VAT not being a tax on consumption as such: the way that the taxable amount is determined.1 Article 1 of the EU VAT Directive states that VAT is “(…) a general tax on consumption exactly proportional to the price of the goods and services (…)”. In a ‘true’ consumption tax, where the actual individual consumption is the relevant indicator for taxation, one would expect consumption of similar goods and services to be taxed based the objective value of the consumed goods rather than the price that parties are prepared and have agreed to pay for these goods or services.2

In the first proposal for a Sixth Directive,3 the taxable amount for transactions where the consideration was not (solely) a sum of money was the ‘open market value’ of the subject of the supply. Prima facie, this looks like another argument for considering the EU VAT something different from ‘a general tax on consumption’. However, using the open market value as a taxable amount was proposed because the Commission sought to put domestic transactions and importations on the same footing as regards the taxable amount and not because the Commission wished the amount to be in line with the purpose of VAT.4 This part of the proposal was abandoned in the amended proposal and the final version of the Sixth Directive, for various reasons that did not have anything to do with the purpose of VAT.5

Another way of establishing the purpose of VAT is by examining the CJEU case law on the provision that precludes Member States to introduce or maintain taxes that qualify as a VAT.6,7 In one of these cases (the Bregandi case)8 concerning this provision, the CJEU holds that this provision does not preclude a tax that “does not display the characteristics of a general tax on consumption levied on the price charged for the provision of services”.

VAT therefore seems to be a tax on expenditure for consumption. As I mentioned before, it can be argued that the ‘consumption’ is a reflection of the legal character of the VAT, where the method of taxation, i.e. taxing expenditure, is a reflection of the general, objective character of VAT.

This raises questions about the provisions in the EU VAT Directive under which certain transactions, such as the application or use of business goods for private purposes and the movement of own goods to another country by a taxable person, without a payment being made for that application or transfer, are subject to VAT. If EU VAT is a tax on consumer expenditure, how can transactions for which no consideration is charged, be subject to VAT?

In case of the application or use for private purposes of business assets, the grounds for taxation can be found in the fact that private consumption takes place of goods and/or services for which expenditures have been made, although the expenditures were made by the taxable person acting as such. This taxable person will probably have deducted the VAT on the costs of these goods and/or services. In order to avoid untaxed consumption and to ensure neutrality (in the sense that similar transactions, in this case sales of goods and services that will be used for private consumption, are treated the same for VAT purposes), these transactions are treated as supplies of goods or services for consideration, and therefore subject to VAT.9

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