6.6.3.1 Exemption without credit – the private application or use of business assets that are goods

The EU VAT Directive provides for a number of supplies of goods that qualify as a VAT exempt supply of goods without credit,1 such as the supply of dental prostheses by dentists or dental technicians. Even though it may seem hard to imagine a dentist providing one of his clients with a free dental prosthesis as a promotional activity, that supply should be covered by the VAT exemption in Article 132(1)(c). However, because these supplies would also be VAT exempt if performed for consideration, the dentist in my example would not have been able to deduct the VAT on the purchase of dental prostheses in the first place.2

Under Articles 16 and 26 of the EU VAT Directive, the free supply or application of business assets is only taxable insofar as VAT was deducted on the purchase of those assets. This will, therefore, probably not be the case. Therefore, if no VAT was deducted, these supplies are not treated as supplies that are made for consideration, which means they cannot be treated as VAT exempt either.

The transactions that are treated as taxable supplies under Articles 16 and 26 of the EU VAT Directive were introduced to ensure that the business that deducted the VAT on the purchase of the items should be treated the same as a consumer buying the same items in the same jurisdiction. If the supply of a good directly to a consumer would be VAT exempt, the same supply made to a business should also be treated as VAT exempt (unless specific provisions in the EU VAT Directive would require the recipient of the supply to have a specific status).