Roadtrip through ECJ Cases – Focus on ”Free Products” (Art. 16)

Last update: July 25, 2025

Relevant article in the EU VAT Directive 2006/112/EC

Article 16
The application by a taxable person of goods forming part of his business assets for his private use or for that of his staff, or their disposal free of charge or, more generally, their application for purposes other than those of his business, shall be treated as a supply of goods for consideration, where the VAT on those goods or the component parts thereof was wholly or partly deductible.
However, the application of goods for business use as samples or as gifts of small value shall not be treated as a supply of goods for consideration.

What Article 16 Says

It states that:

“The supply of goods by a taxable person for his business shall be treated as a supply of goods for consideration where the goods are used for the private purposes of the taxable person or of his staff, or are disposed of free of charge, or more generally, are not used for the purposes of his business.”

Why It Matters

1. Prevents VAT Evasion Through Free Supplies
- Ensures that free disposals or private use of business assets are treated as taxable events.
- Stops businesses from avoiding VAT by transferring goods without formal sale.
2. Protects VAT Neutrality
- Maintains the principle that VAT should apply to final consumption, even if no payment is made.
- Aligns with the idea that VAT is a tax on consumption, not just on sales.
3. Ensures Fair Treatment Across Transactions
- Treats private use of business goods the same as if they were sold, ensuring consistent tax treatment.
- Applies to goods like company cars, promotional items, or inventory used personally.
4. Supports Audit and Compliance
- Gives tax authorities a legal basis to assess VAT on non-business use of business assets.
- Encourages businesses to track usage and document disposals properly.

Practical Examples

A company gives away branded merchandise to clients — VAT may be due under Article 16.
An employee uses a company laptop for personal use — VAT adjustment may be required.
A business owner takes inventory home for private use — treated as a taxable supply.

ECJ Cases Decided