The EU VAT Treatment of Vouchers (FM nr. 157) 2019/7.2.1.2:7.2.1.2 Bartering because of (temporary) insufficient cash/cash flow

The EU VAT Treatment of Vouchers (FM nr. 157) 2019/7.2.1.2

7.2.1.2 Bartering because of (temporary) insufficient cash/cash flow

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Another reason for bartering for both businesses and private individuals is lack of cash (e.g. a situation of temporary financial insolvency). If a business possesses unused goods, e.g. stock that it has produced, or when a business owns goods or employs people that they can’t deploy to their full potential, these ‘means’ can be used for bartering, especially in situations where these businesses don’t have much cash and/or the cost of financing the purchase of goods/services that can be bartered is higher than the value of the surplus stock/unused assets and people. This motive for bartering is closely linked to the reason I describe next: the economic benefit of bartering.

Examples

An example of bartering because of (temporary) absence or lack of cash is an artist that uses his paintings to pay for his bar tab. When the artist is asked to pay for his consumptions, he will be told that he owes the bar a certain amount of cash. If the artist has no money (or does not have enough money) and will not have enough money for some time, he might consider paying his bar tab with one (or more) of his paintings. If the bar owner considers the (future) value of the painting(s) as sufficient payment for the consumptions, a barter transaction may be concluded.

Another example could be a business in (temporary) financial difficulty that owns a multi-storey building and that has had to let go some of its staff. The business now has one or more vacant floors in its building that it could let for cash, but also for a consideration in kind – it could choose to allow its IT-services provider to use the floor(s) as a barter transaction, paying for the IT-services in kind. In this scenario, neither the IT company nor the business would need cash as a consideration for each other’s supplies.

In various countries, restaurants exist where people with money can pay the menu price for their food and drinks or a bit more than the advertised price to partially pay for (or sponsor) a needy person so that he or she can eat there as well. The needy person also has the option to work for his or her food and drinks, e.g. by helping to tidy the place or to do/sign up for ‘volunteer work’. This latter feature is another example of bartering as a result of lack of money.1

Because in this research I focus on the VAT consequences of promotional activities, bartering as a result of a shortage of money is not inside the scope of the research. Businesses generally do not set up promotional activities in the sense of this research in order to allow customers that have financial difficulties to obtain their products by bartering. Therefore, this reason for bartering is not relevant for this specific research.

However, there is only a thin line between bartering as a result of (temporary) shortage of cash and bartering because of economic benefits. Even if the artist in the above example would have enough money, it could still be beneficial for both parties if the artist were to pay the bar tab in kind. I will elaborate on this in the next subsection.

I conclude this subsection by observing that, as with most types of barter transactions, usually barter transactions that are driven by ‘shortage of cash’ are concluded if the (economic) outcome of the transaction is perceived to be equally beneficial to both parties involved. The following famous anecdote is of an example where this was not the case:

It (the anecdote, JB) concerns Boris Tomashefsky, the great Yiddish actor. He was met backstage one day by an admiring fan, a very pretty girl. Tomashefsky closed the door and the two made love. The next day, the girl returned. She needed help for her sick daughter, she explained, and the actor gave her two tickets for the Saturday matinee. The girl was aghast. ‘I need bread, not tickets’, she remonstrated. Tomashefsky replied, ‘You want bread, screw a baker. Tomashefsky gives tickets’.2

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