Briefing Document & Podcast: EU VAT Directive 2006/112/EC – Taxable amount (Art. 72-92)

VAT Taxable Amounts: Comprehensive Briefing Document

This briefing document provides a detailed review of the main themes and most important ideas or facts concerning VAT taxable amounts, drawing from the provided sources. It covers definitions, inclusions, exclusions, specific scenarios, and special provisions related to various types of supplies and transactions.

1. Definition and Determination of Open Market Value (OMV)

The concept of “Open Market Value” (OMV) is fundamental to determining the taxable amount in various VAT contexts, especially where standard market conditions may not apply.

• Primary Definition: OMV is defined as “the full amount that…a customer at the same marketing stage…would have to pay, under conditions of fair competition, to a supplier at arm’s length within the territory of the Member State in which the supply is subject to tax.” This ensures that the value reflects a genuine, uninfluenced market price.
• Determination without Comparable Supply: When a comparable supply of goods or services cannot be ascertained, specific rules apply:
• For Goods: The OMV is “not less than the purchase price of the goods or of similar goods or, in the absence of a purchase price, the cost price, determined at the time of supply.” This provides a baseline value based on the cost of acquisition or production.
• For Services: The OMV is “not less than the full cost to the taxable person of providing the service.” This ensures that the taxable value covers the actual expenditure incurred by the supplier.

2. General Rules for the Supply of Goods or Services

For most supplies, the taxable amount is broadly defined to capture the total economic benefit received by the supplier.

• General Rule (Article 73): The taxable amount includes “everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.” This emphasizes that all forms of payment, regardless of source, are included.
• Multi-purpose Vouchers (Article 73a): The taxable amount is typically the “consideration paid for the voucher.” If this information is unavailable, it defaults to “the monetary value indicated on the multi-purpose voucher itself or in the related documentation, less the amount of VAT relating to the goods or services supplied.”
• Specific Scenarios for Supply of Goods: Application/Disposal of Business Assets or Cessation of Activity (Article 74): The taxable amount is the “purchase price of the goods or of similar goods or, in the absence of a purchase price, the cost price, determined at the time when the application, disposal or retention takes place.”
• Transfer of Goods to Another Member State (Article 76): Similar to the above, the taxable amount is the “purchase price of the goods or of similar goods or, in the absence of a purchase price, the cost price, determined at the time the transfer takes place.”
• Specific Scenarios for Supply of Services: Private Use of Business Assets or Free Services (Article 75): The taxable amount is the “full cost to the taxable person of providing the services.”
• Supply of Service for Business Purposes (Article 77): The taxable amount is the “open market value of the service supplied.”

3. Inclusions and Exclusions from the Taxable Amount

Certain items are explicitly included or excluded to ensure consistency and fairness in VAT calculation.

• Inclusions (Article 78):“Taxes, duties, levies and charges, excluding the VAT itself.”
  • “Incidental expenses, such as commission, packing, transport and insurance costs, charged by the supplier to the customer.” Member States may also consider expenses covered by a separate agreement as incidental.
• Exclusions (Article 79):“Price reductions by way of discount for early payment.”
  • “Price discounts and rebates granted to the customer and obtained by him at the time of the supply.”
  • “Amounts received by a taxable person from the customer, as repayment of expenditure incurred in the name and on behalf of the customer, and entered in his books in a suspense account.” Crucially, the taxable person “must furnish proof of the actual amount of the expenditure… and may not deduct any VAT which may have been charged” on these amounts.

4. Preventing Tax Evasion/Avoidance (Close Ties)

Member States have powers to use OMV to prevent VAT evasion or avoidance in transactions involving close relationships.

• Conditions for OMV Application (Article 80): Member States “may take measures to ensure that…the taxable amount is to be the open market value” when transactions involve “family or other close personal ties, management, ownership, membership, financial or legal ties.” This is specifically permitted in three scenarios:
  • “where the consideration is lower than the open market value and the recipient of the supply does not have a full right of deduction.”
  • “where the consideration is lower than the open market value and the supplier does not have a full right of deduction…and the supply is subject to an exemption.”
  • “where the consideration is higher than the open market value and the supplier does not have a full right of deduction.”
• Purpose: These provisions aim to counteract situations where related parties might manipulate prices to gain a tax advantage, particularly when one party cannot fully deduct VAT.

5. Intra-Community Acquisition and Importation of Goods

Different rules apply depending on whether goods are acquired within the EU or imported from outside.

• Intra-Community Acquisition of Goods (Articles 83-84):General Rule: The taxable amount is “established on the basis of the same factors as are used…to determine the taxable amount for the supply of the same goods within the territory of the Member State concerned.” This means the general rules for supply of goods apply.
• Specific Acquisitions (e.g., transfers): It’s the “purchase price of the goods or of similar goods or, in the absence of a purchase price, the cost price, determined at the time of the supply.”
• Excise Duty: Excise duty “due from or paid by the person making the intra-Community acquisition…is included in the taxable amount.” If the excise duty is refunded, the taxable amount is “reduced accordingly.”
• Importation of Goods (Articles 85-87):Primary Basis (Article 85): The taxable amount is primarily the “value for customs purposes, determined in accordance with the Community provisions in force.”
• Inclusions (Article 86): In addition to the customs value, the taxable amount includes “taxes, duties, levies and other charges due outside the Member State of importation, and those due by reason of importation, excluding the VAT to be levied.” It also includes “incidental expenses, such as commission, packing, transport and insurance costs, incurred up to the first place of destination within the territory of the Member State of importation as well as those resulting from transport to another place of destination within the Community, if that other place is known when the chargeable event occurs.”
• Exclusions (Article 87): Similar to general supplies, exclusions include “price reductions by way of discount for early payment” and “price discounts and rebates granted to the customer and obtained by him at the time of importation.”

6. Miscellaneous Provisions

These articles address adjustments, currency exchange, and specific material handling.

• Adjustments to Taxable Amount (Article 90): The taxable amount “shall be reduced accordingly” in cases of “cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place.” However, Member States “may derogate from paragraph 1” in cases of total or partial non-payment, offering flexibility.
• Currency Exchange Rates (Article 91):Importation: Exchange rates are “determined in accordance with the Community provisions governing the calculation of the value for customs purposes.”
• Other Transactions: The “latest selling rate recorded…on the most representative exchange market or markets of the Member State concerned” applies, or a rate determined by reference to these markets. Importantly, “Member States shall accept instead the use of the latest exchange rate published by the European Central Bank at the time the tax becomes chargeable.”
• Returnable Packing Material (Article 92): Member States have two options: either “exclude them from the taxable amount and take the measures necessary to ensure that this amount is adjusted if the packing material is not returned” or “include them in the taxable amount and take the measures necessary to ensure that this amount is adjusted if the packing material is in fact returned.” This allows for practical management of these costs.

7. Special Considerations

• Works of Art, Collectors’ Items, and Antiques (Articles 81 & 89): Certain Member States may apply special rules for these items, allowing the taxable amount to be a “fraction” of the standard amount, provided the VAT due is “equal to at least 5 %” of the standard amount. This provides for specific sectoral considerations.
• Exempt Investment Gold (Article 82): Member States may include the “open market value of the investment gold” in the taxable amount if it loses its VAT exempt status when used as a basis for working and supplied.

This comprehensive overview highlights the detailed and often specific rules governing VAT taxable amounts, designed to ensure clarity, prevent evasion, and adapt to diverse commercial realities within the European Union.