Europe: Characterisation of a single complex supply for VAT purposes — what is the correct test?

• VAT is a tax on transactions and is usually easy to apply when a single price is paid for a single supply.
• However, when a transaction involves a single price being paid for a package of items, a taxpayer must consider whether there is a single or multiple supply for VAT accounting purposes.
• The principle of a single complex supply was established by the European Court of Justice, whereby the elements of a package were so closely linked that they formed objectively, from an economic point of view, a whole transaction and no element was ancillary to another.
• The question then is how should the single complex supply be characterised for VAT purposes?
• Recent case law has considered alternative tests to the “predominant element” test and whether there should be any hierarchy for these tests based on jurisprudence to date.
• The UK Court of Appeal recently held that the primary test to apply is one based on the predominant element of the supply.
• Where there is a “single, indivisible economic supply, which would be artificial to split” per precedent case law, there are two possible tests for ascertaining the correct VAT treatment: the “predominant element” test and the “overarching” test.

Source Baker & McKenzie

See also

• Roadtrip through ECJ Cases: Taxable transaction, Place of Supply, VAT rate, Exemption, Invoicing – ”Composite supplies”
• Gray & Farrar International Ltd – CoA judgment – Place of supply of matchmaking services – taxpayer loss

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