10.3.6 What should be the taxable amount or taxable basis for barter transactions?

Barter transactions are two simultaneous supplies of goods or services for consideration, where the considerations for both supplies is considered to be the same amount and these amounts are settled, as a result of which no cash payments are effectively made. Under the current EU VAT rules, the method for calculating the taxable amount for these barter transactions is based on the rules for calculating the taxable amount for free supplies of goods and services. For goods, the taxable amount is deemed to be the purchase price of the goods or of similar goods or, in the absence of a purchase price, the cost price, determined at the time of the supply. The taxable amount for services is the full cost of providing the services. As I demonstrated, applying this method for determining the taxable amount for barter transactions leads to results that are not fully in line with some of the relevant underlying principles of the EU VAT system or the economic and commercial reality of these barter transactions.

I therefore proposed an alternative method for determining the taxable amount in these situations, based on the economic and commercial reality of these transactions. First, for barter transactions between two taxable persons, these persons should be required to agree the value of their supplies. If this proves to be impossible or where non-taxable persons are involved in the barter transaction, the ‘open market value’ of the transactions should be used to establish the taxable amount. This would require an amendment to the existing EU VAT rules.

Where a ‘payment in kind’ for a supply of goods or services has no real economic value but where it is (more) a condition for qualifying for a discount or a supply, the ‘payment in kind’ is not a consideration and the transaction is not a barter transaction.