EU VAT Committee – Barter Transactions: Italy’s Concerns and Commission’s Clarifications

Source

WP 1107 – Italian question on barter transactions

Summary

The European Commission’s VAT Committee has addressed Italy’s concerns regarding the determination of taxable amounts for barter transactions, emphasizing that such transactions are treated similarly to monetary transactions under VAT. The primary method for determining the taxable amount is the “subjective value” of the goods or services received, although the use of “open market value” under Article 80 is an exception, applicable only under specific conditions to prevent tax evasion.
Italy proposed equating barter transactions with “legal ties” to facilitate the use of open market value; however, the Commission clarified that legal ties must be assessed on a case-by-case basis, and not all barter transactions inherently constitute such ties.
The paper highlights challenges in applying cost criteria for self-produced goods and intellectual services, noting the need for further discussion on alternative methods for determining taxable amounts when standard criteria are difficult to apply.

Detailed analysis

Here is a detailed briefing document reviewing the main themes and most important ideas or facts from the provided source regarding the application of EU VAT provisions to barter transactions:

Subject: Application of EU VAT Provisions to Barter Transactions
Source: European Commission Directorate-General Taxation and Customs Union, VAT Committee Working Paper No 1107 (Brussels, 16 April 2025)
Origin of Question: Italy
References: Articles 73 and 80 of VAT Directive 2006/112/EC

1. Executive Summary

This working paper from the European Commission’s VAT Committee addresses questions raised by Italy concerning the determination of the taxable amount for Value Added Tax (VAT) in barter transactions, where the consideration is in kind rather than monetary. Italy suggests that the inherent legal ties in barter transactions, especially between connected parties, may facilitate tax evasion or avoidance. Therefore, Italy proposes equating barter with a “legal tie” under Article 80 of the VAT Directive to allow the use of “open market value” for determining the taxable amount when certain conditions are met. Furthermore, Italy seeks clarification on alternative methods for determining the taxable amount when the open market value or cost criterion is difficult to apply, particularly for self-produced goods and intellectual work services.

The Commission Services’ opinion, supported by established CJEU case-law, is that while barter transactions fall under the scope of VAT, they are fundamentally identical to monetary transactions in terms of economic and commercial nature. The primary method for determining the taxable amount in barter is the “subjective value” – the monetary value of the goods or services received as consideration, corresponding to what the recipient is prepared to spend. The use of “open market value” under Article 80 is an exception, strictly limited to specific circumstances involving pre-defined “legal ties” (among others) and a risk of tax evasion or avoidance, where the consideration deviates from the open market value and one of the parties does not have a full right of deduction. The Commission services disagree with Italy’s suggestion that barter itself constitutes a legal tie under Article 80, stating that such ties must be assessed on a case-by-case basis. When the open market value cannot be determined based on comparable supplies, the criteria in Article 72(2) (purchase price/cost price for goods, full cost for services) may be used. The paper acknowledges the difficulties in applying the cost criterion, particularly for self-produced goods and intellectual work services, and refers to existing case-law on the inclusion of direct and indirect costs.

2. Background

Italy has consulted the VAT Committee on how to determine the VAT taxable amount in barter transactions, where goods or services are exchanged for other goods or services. Italy highlights the potential for tax evasion or avoidance in such transactions, especially when they involve self-produced luxurious goods or intellectual work services. Italy believes that the nature of barter transactions often implies pre-existing or personal relationships between parties, suggesting a “legal tie” that could warrant applying Article 80 of the VAT Directive.

3. Key Concepts and Definitions

Barter Transactions: Transactions where the consideration for a supply of goods or services is another supply of goods or services, rather than a monetary payment.
Taxable Amount: The value on which VAT is calculated. According to Article 73 of the VAT Directive, this is generally everything that constitutes the consideration obtained or to be obtained by the supplier.
Open Market Value (Article 72): The full amount a customer at the same marketing stage would pay under conditions of fair competition to an arm’s-length supplier. If no comparable supply exists, it’s based on purchase/cost price for goods or full cost for services.
Subjective Value: The value actually received as consideration, representing what the recipient is prepared to spend to obtain the supply. This is the general rule for determining the taxable amount under Article 73, including for barter.
Article 80 of the VAT Directive: An exception allowing Member States to use the open market value as the taxable amount in specific cases involving related parties (family or other close personal ties, management, ownership, membership, financial or legal ties) to prevent tax evasion or avoidance, provided certain conditions regarding the consideration’s deviation from open market value and the parties’ right to deduction are met.

4. Main Themes and Ideas

Barter transactions are within the scope of VAT: It is established case-law that “barter contracts under which the consideration is by definition in kind, and transactions for which the consideration is in money are, economically and commercially speaking, two identical situations as regards the VAT Directive.” The consideration in a barter transaction can therefore constitute the taxable amount under Article 73, provided there is a direct link between the exchanged goods/services and their value can be expressed in monetary terms.
General rule for taxable amount in barter is Subjective Value: The taxable amount is the consideration actually received, which is the subjective value that the recipient attributes to the goods or services received in exchange.
Application of Open Market Value (Article 80) is Exceptional: The use of open market value is an exception to the general rule and is only permissible under the specific conditions listed in Article 80(1), namely:
- The supply involves parties with specific ties (family, personal, management, ownership, membership, financial, or legal ties as defined by the Member State).
- There is a risk of tax evasion or avoidance.
- The consideration is lower than the open market value and the recipient lacks a full right of deduction.
- The consideration is lower than the open market value, the supplier lacks a full right of deduction, and the supply is exempt.
- The consideration is higher than the open market value and the supplier lacks a full right of deduction.
Barter does not inherently constitute a “legal tie” under Article 80: The Commission Services disagree with Italy’s suggestion that barter, by its nature, creates a legal tie sufficient to trigger Article 80. The existence of such ties must be assessed “on a case-by-case basis.” Deeming all parties to a barter transaction to be closely connected has “no basis” in Article 80.
Taxable amount based on Open Market Value requires a case-by-case analysis: If Article 80 conditions are met, the open market value is determined first based on comparable supplies (Article 72, first paragraph). Only if no comparable supply can be ascertained should the criteria in Article 72(2) be used (cost price for goods, full cost for services).
Difficulties in determining “Cost Price” and “Full Cost”: Italy raises concerns about the practical application of the cost criterion (under Article 72(2) or as an alternative when subjective value is difficult to determine), particularly regarding the inclusion of general costs for self-produced goods and intellectual work services.
CJEU Case-law on Cost Price: The CJEU has ruled that the cost price under Article 74 (relevant for calculating the taxable amount in certain internal transactions) should be “as close as possible to the purchase price and include, consequently, both direct production and manufacturing costs and indirect costs such as financing costs, whether or not those costs have been subject to input VAT.”
Italy’s Proposed Alternatives when Cost Criterion is Difficult: Italy suggests using indices, comparing to market consideration/similar goods (for self-produced goods), and referring to professional fee parameters/tariffs or indices (timing, complexity) for intellectual work services when the cost criterion doesn’t adequately reflect value or is hard to apply, especially in cases of significant deviation from listed values.

5. Key Facts and Figures (from the source)

The document is dated 16 April 2025.
It is VAT Committee Working Paper No 1107.
The question originates from Italy.
It refers to Articles 72, 73, and 80 of Council Directive 2006/112/EC (the VAT Directive).
CJEU case-law is referenced multiple times, including
Recital 26 of the VAT Directive is cited regarding the prevention of tax loss through connected parties.

6. Italy’s Specific Questions

“whether a Member State may equate barter, by reason of the consideration in the form of a supply of goods or services, with a legal tie pursuant to Article 80 of the VAT Directive, thus allowing the open market value to be used for levying the VAT on such transactions where the conditions in Article 80 are fulfilled.”
“which criteria may be used to determine the taxable amount in cases where it not possible to resort to the open market value and the cost criterion either does not adequately represent the value of the goods and services subject to the barter or is not immediately applicable as in the case of self-produced goods or intellectual work services.”
In such cases (from question 2), “enquire about the possibility to use indices or parameters for calculating the incidence of general costs when determining the taxable amount where the cost of the self-produced good or the intellectual work services deviates significantly from their value as indicated on price lists or scale of charges.”
In such cases (from question 2), “In the presence of a significant deviation between the cost of the self-produced good or the provision of intellectual work services and their value as indicated on price lists or scale of charges, do you agree with the possibility of referring to the latter for the determination of the taxable amount?”

7. Commission Services’ Opinion (Highlights)

Barter is an identical situation to monetary transactions for VAT purposes.
The taxable amount is the “subjective value” actually received as consideration, which must be expressible in monetary terms.
Equating barter itself with a legal tie under Article 80 “provides no basis.” The existence of ties must be assessed case-by-case.
Article 80’s application is strictly limited to the exhaustive list of circumstances defined in Article 80(1)(a), (b), and (c), which require a risk of tax evasion/avoidance and specific conditions related to the consideration and deduction rights.
If Article 80 applies, the open market value is the primary basis (comparable supplies). Only if comparable supplies cannot be ascertained can the cost-based criteria from Article 72(2) be used.
Determining total costs for the cost criterion should be possible, referencing Articles 74, 75, and 76.
CJEU case-law indicates that “cost price” includes direct and indirect costs.

8. Areas of Difficulty / Questions Outstanding

Practical application of the cost criterion, especially for self-produced goods and intellectual work services, and the precise inclusion of general costs.
Whether Italy’s proposed alternative methods (indices, market comparisons, professional tariffs) are acceptable for determining the taxable amount when open market value and the direct cost criterion are difficult to apply, particularly in cases of significant value deviation. The Commission Services’ opinion does not explicitly endorse or reject these specific methods in this context, although they do acknowledge the difficulty raised by Italy.

9. Delegations’ Role

Member State delegations are asked to express their opinion on the Commission services’ opinion.

10. Conclusion

The working paper clarifies the existing legal framework for VAT on barter transactions, emphasizing the primacy of the subjective value as the taxable amount and the exceptional nature of applying the open market value under Article 80, which requires a specific, demonstrable tie between parties and a risk of tax evasion, not merely the existence of a barter arrangement. It acknowledges the practical challenges in applying the cost criterion in certain scenarios and highlights the need for further discussion within the VAT Committee on potential alternative methods for determining the taxable amount in such difficult cases

Source WP 1107 – Italian question on barter transactions