8.5 Conclusion

Businesses that organise lotteries (or other prize competitions) for consideration, i.e. where people have to pay a consideration to enter the competition, perform VAT exempt activities. The VAT incurred on the purchase of goods and services that will be distributed as prizes is not deductible, and neither is the VAT on the other costs related to this activity. The distribution of the prizes is not subject to VAT, if they are supplied by the organiser of the lottery.

Businesses that organise lotteries (or other prize competitions) for free can deduct the VAT incurred on the purchase of the goods and services that will be distributed as prizes as VAT on ‘general costs’ or ‘overhead costs’. The services that are distributed are only taxed if the lottery (or other competition) is not organised for the purpose of the (main) business organising the lottery. For goods, VAT is due on the distribution insofar as the VAT on those goods or the component parts thereof was wholly or partly deducted by the taxable person. This is different if the goods qualify as samples or as gifts of small value.1 This is in line with the economic and commercial reality of these types of transactions.

Because the VAT treatment of the supply of goods and services as (lottery) prizes under positive law does not deviate from the VAT treatment of such transactions under appropriate or desired law, no recommendations need to be made.