7.4.2 Using a good or service as payment/consideration for a taxable supply

Making a cash payment (in return for a taxable transaction) is not a taxable event.1 However, payments in kind can lead to VAT being due. An example is a company offering an employee a certain amount as a salary in cash, or a smaller amount of cash as well as the use of a company car, in return for the work performed by that employee. The cash salary payments do not trigger any VAT consequences, also because this is explicitly determined in the EU VAT Directive.2 The use of the company car is, however, subject to VAT. This is caused by the fact that this part of the agreement can be looked at from two sides. From the perspective of the employer, the business that puts the company car at the disposal of its employee, the company actually performs a service for consideration. It is this service, as performed by the business, that is subject to VAT, not the work performed by the employee. That work is the consideration ‘paid’ by the employee for having a company car at her disposal.3 However, it can also be argued that the actual difference between the ‘full cash salary’ and the ‘lower salary’ from the above example is actually a (cash) payment by the employee for the use of the car – she effectively uses part of her wages to pay for that company car, which would no longer make this a ‘consideration in kind’. I will elaborate on these options in Section 7.4.3.

In my view, a ‘payment in kind’ does not exist, from an EU VAT perspective. There are always two separate transactions where the monetary consideration is settled. I am of this view despite the fact that local EU VAT legislation4 and CJEU case law suggest that payments in kind do exist and that they have their own VAT treatment. Of course, economically, ‘payments in kind’ do exist, and parties to an agreement where goods and/or services are supplied with no additional cash payment can consider their supplies to be ‘payments in kind’, but from a VAT perspective this does not make sense to me, as I will explain in the next Section.