2.6.4.1 The CJEU’s economic and/or commercial reality

In the cases concerning abuse of law as discussed above, economic and/or commercial reality is used as a reflection of the objective factual elements to a transaction that are relevant for determining the VAT treatment of that transaction.

Abuse of law is a situation that is wholly artificial, but where the legal and economic reality coincide, in the sense that parties do as they have agreed and there is no difference between what they agreed and what they are actually doing. The CJEU holds that these transactions do not reflect ‘economic reality’ and that they should be redefined or ignored for VAT purposes.

There are also situations where parties have agreed something, but where what they actually do, in (economic) reality, is different from what they agreed. This can be either a deliberate deviation or unintentional. In these cases, the CJEU holds that economic reality, i.e. what parties actually do and not what they agreed, should be the basis for assessing the VAT consequences of the relevant transactions. The principle of neutrality requires that transactions that are the same from an economic perspective (or in economic reality) are treated the same for VAT purposes.

In the cases about composite supplies, ‘economic reality’ is also a way of establishing neutrality. It is (also) a species of neutrality, in the sense that if transactions are the same in economic reality, they should be treated the same from a VAT perspective. For this research framework, I will use economic and/or commercial reality as a reference point for examining whether the VAT treatment of voucher transactions and promotional activities under positive law is in line with the VAT treatment under appropriate or desired law. For that purpose, economic reality should be used to determine the objective nature of a transaction, which determines its VAT treatment.