4.6 How to allocate the total consideration to the different elements of a multiple-element transaction

After establishing which elements in a multi-element transaction are made for consideration, it has to be determined which part of the total consideration paid is actually attributable to which element. It is possible that the multiple-element transaction consists of individually priced elements, e.g. a transaction concerning a trolley filled with groceries in a supermarket. A single amount will be paid at checkout, but it is clear which part of the consideration is paid for which element. It can be more difficult when only a single price is agreed for a multiple element supply. Establishing and applying the correct rules for apportionment is relevant because the supply of each different element may have a different VAT treatment, such as the applicable VAT rate, a VAT exemption, the place of supply etc.

When nothing is agreed about the apportionment of a consideration for a multiple-element transaction, different methods could be used for determining the apportionment. Some examples of possible apportionment methods, as found in CJEU case law and opinions of Advocate-Generals to the CJEU, are based on:

No explicit method for apportioning the total consideration to different elements of a multiple-element transaction is included in or prescribed by the EU VAT Directive. The ‘cost’ of goods and services is used for determining the taxable amount in case these goods and services are ‘deemed’ to be supplied for consideration,6 but these taxed supplies are intended to avoid non-taxation of consumption. The same result could have been achieved by (retroactively) disallowing deduction of the VAT on the purchase of these goods and services.7 Therefore, it makes sense to use the cost as taxable amount for these deemed supplies. However, in my view, this rationale, i.e. using a cost-based method, should not apply to apportioning an actual consideration to various elements of a multiple-element transaction.

VAT is a consumption tax designed to be borne by the final consumer. VAT is precisely proportional to the price of the goods and services.8 This implies in my view that the actual price of the various elements, as it would have been charged if these elements were sold separately, should be used as a method for determining the apportionment of the total consideration. The actual price is therefore, in this view, the (advertised) market value of the separate elements. This method would also ensure that situations that are similar from an economic or commercial point of view are treated identically as regards the application of the VAT system, which ensures the neutrality of the VAT system.9

It should be clear that using the (advertised) market value of the elements in a multiple-element transaction for allocating the total consideration to the various elements should not result in a taxable person being conceded to the right to use that method to reduce his tax liability by artificially inflating the taxable amount subject to lower VAT rates.10

If it is not possible to identify the market value of certain elements, or if a business can prove that the method based on the criterion of actual costs reflects the actual structure of the multiple-element transaction (more) accurately than the method based on the (advertised) market value, the actual cost method may also be applied.11

The above methods for allocating the total consideration received for a multiple-element supply to its various elements, is supported by CJEU case law.12