4.8 Conclusion: the VAT treatment of composite supplies

In this Chapter, I have described the VAT treatment of composite supplies. As a main rule, all supplies, or elements to a multiple-element supply, should be considered separately for determining the VAT treatment of those supplies. This is different where economic and commercial reality dictates that the multiple-element supply should be treated as a single, composite supply, for example in cases of absorption or amalgamation.

Where one or more elements to a multiple-element (or composite) supply are advertised as ‘free of charge’, economic and commercial reality may dictate that these ‘free supplies’ should actually be treated as being made for consideration from a VAT perspective. This means that in some cases, the total consideration received for a multiple-element supply where some of the elements are advertised as ‘free’, should still be allocated to these ‘free’ elements as well.

Where one price is paid or received for a multiple-element transaction, this price will have to be allocated to its various elements. This allocation should be based on the advertised price of the various elements, unless these prices are not known or where this allocation method would not accurately reflect the actual cost structure of the composite transaction. In that case, the ‘actual cost method’ would be the best alternative.

VAT deduction should not be affected by the answer to the question whether certain elements to a composite transaction are supplied for free.