7.6. Commentary Within the territory of a country The price

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1 7.6. Commentary Within the territory of a country The price The taxable amount is everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer, or a third party, for such supplies, including subsidies "directly linked" to the price of such supplies. The taxable amount is a gross amount which should not take into account possible cost. It is the expenses for the consumption (M. van Hilten, Bancaire en financiële prestaties in de Europese BTW, Kluwer 1993, p241).the concept of consideration is neutral. It makes taxable: - a sale or an exchange which is analysed as reciprocical supply; - a profitable activity, with lossess or at cost-price. Such consideration is capable of being expressed in an amount assessed in money. It is a subjective value since the basis of assessment is the consideration actually received and not a value assessed according to objective criteria. However a very low amount of rent is likely not to be treated as the consideration for an economic activity within the meaning of the Directive (Case 50/87, Commission v French Republic, [1988] ECR 4797).The free character may be only apparent like in promotion schemes. If there is no consideration for a supply, there is no taxable base. For this reason, the Court of Justice found against Belgium, because it had calculated VAT on basis of the value paid by a buyer and, at the same time, it applied a registration tax payable on the difference between the list price of new cars and the price invoiced at the same rate as the VAT rate (Case 324/82 Commission v Belgium [1984] ECR 1861; [1985] 1 CMLR 364 and Case 391/85 Commission v Belgium [1988] ECR 579.). "Open market value" may not be used as a basis of assessment except when there is a derogating measure authorised by the Council (Joined Cases 138 and 139/86 Direct Cosmetics, [1988] ECR 3937). However, the open market value is applicable in the case of self-supplies of services. In the cas of gaming machines offering the possibility of winning, the taxable amount does not include the statutory prescribed proportion of the total stakes inserted which correspond to the winning pay out to the the player (Case C-38/93, Glawe [1994] ECR I-1679). In the event of cancellation, refusal, total or partial non-payment, or where the price is reduced after the supply takes places, the taxable amount is reduced accordingly under conditions determined by Member States. Member States may derogate from the requirement to reduce the taxable amount in cases of total or partial non-payment however. There must be a direct link between the supply and the consideration received (Case 230/87 Naturally Yours Cosmetics [1988] ECR 6365; [1989] 1 CMLR 797). A consideration consisting in an unascertained reduction of the value of shares held by the members of a co-operative cannot be taken into account and such a loss of value may not be regarded as a payment received by a co-operative providing service (Case 154/80 Coöperatieve Aardappelbewaarplaats [1981] ECR 445; [l981] 3 CMLR 337.). 223

2 Not every payment leads necessarily to the payment of the tax by the supplier: it may be as a result of a donation, or the sharing of costs supported by joint recipients of goods and services. The fact that the price is paid before the, at the moment of after the supply does not influence the taxable amount but the chargeability of the tax (See above ne 7) Elements to include in the taxable base The taxable amount includes: - taxes, duties, levies and charges excluding VAT itself; -incidental expenses such as commission, packing, transport and insurance costs charged by the supplier to the purchaser or customer. As regards returnable packing costs, Member States may either exclude them from the taxable amount or include them. Necessary measures have to be taken for later adjustments. Member States are not empowered to treat an ancillary service such as the collection of the cash-on-delivery price separately from the service of transport of goods (Case 126/78 Nederlandse Spoorwegen [1979] ECR 2041; [1980] 1 CMLR 144). However, a price which is related to various distinct supplies should be taxed separately. Where, in a sales transaction, the price of goods is paid by the purchaser by credit card, and is paid to the supplier by the card issuer, after deduction of a percentage by way of commission for having provided the service, that deduction must be included in the taxable basis for the tax which the taxable supplier must pay to the revenue authorities. Indeed, there are two transactions when the purchaser pays the price of the goods by means of a credit card. First, the sale of the goods by the supplier, who calculates in the total price the VAT which is to be paid by the purchaser as final consumer and charged by the supplier on behalf of the revenue authorities. Secondly, there is the supply of services to the supplier by the issuer of the card. The purpose of that service is to guarantee payment of the goods purchased by means of the card, promotion of the supplier's business by offering the possibility of acquiring new customers, possible advertising of the supplier or some other object. The deduction made by the card issuer constitutes a reciprocal consideration for a service provided by it to the supplier. The methods of payment used in transactions between purchaser and supplier cannot alter the taxable basis. The harmonisation referred to in the Directive would not be achievable were the taxable basis to vary according to whether it related to the VAT borne by the final consumer, or determined the amount which the taxable person was to pay the revenue authorities (Case C-18/92 Chaussures Bally),. According to the EC VAT committee, the price supplement payable on a hire purchase sale is to be included in the taxable amount for supplies of goods, if there was no real loan agreement (Second Report, COM (28) 799 final p29). The Court of Justice ruled that the interest awarded to an undertaking by a judicial decision by reason of the fact that the consideration for services provided had not been paid in due time, should not be included in the taxable amount. In this situation the grant of credit is only remotely connected to the main supply. The interest payable in respect of such credit cannot therefore be described as supplementary payment (Case 222/81 BAZ Bausystem [1982] ECR 2527; [1982] 3 CMLR 688). However, where a supplier of goods or services allows his customer to defer the payment of the price, in return for the payment of interest, only to the time of 224

3 the supply, such interest constitutes not a remuneration for credit but part of the consideration (Case C-281/91, Muys' en De Winter's Bouw en Aannemingsbedrijf BV). The receipt accruing to a street musician is not a consideration for a service to passers-by as (i) there was no agreement between the parties (the passers) by a voluntary made a donation amount they determined as they wished, and (ii) there was no necessary link between the service and the payments. The passers by did not request music to be played for them. The fact that the musician played with a view to collecting, and did collect, money is irrelevant to the determination of whether the activity constituted a supply of services for consideration (Case C-16/93, Tolsma [1994] ECR I- 755). Empire Stores was using a "self introduction scheme" and a "introduce a friend scheme" in order to attract new clients. The new customer or the person introducing a new customer received from Empire Stores a "gift" without any extra-charge when an order was placed. The Court of Justice considers that the customer or the person introducing a new customers supply a service to Empire Stores. The "gift" was at the same time a supply of goods by Empire Stores and a consideration for the services rendered by the new customer or the person introducing a new customer. The taxable base for the supply of the "gifts" is the price which Empire Stores has paid for it and not a "normal value" or a market value" (Case C-33/93, Empire Stores [1994] ECR I-2329) Elements to exclude from the taxable base The taxable amount does not include: - the price reduction by way of discount for early payment; -price discounts and rebates. Price discounts and rebates allowed to the customer and accounted for at the time of the supply cover the difference between the normal retail selling price of the goods supplied and the sum of money actually received by the retailer for those goods, where the retailer accepts from the customer a coupon which he gave to the customer upon a previous purchase made at the normal retail selling price. Indeed such a coupon is nothing other than a document incorporating the obligation assumed by the supplier to allow the bearer of the coupon, in exchange for it, a reduction at the time of purchase or redemption goods (Case C-126/88 Boots [1990] ECR I-1235) - repayment of expenses. This relates to amounts paid in the name, or for the account, of the purchaser Supply of a new item with a used item taken in part exchange The taxable amount does not include only the payment in money - it may also extend to a benefit in kind. In the case of the supply of a new item with an item taken in part exchange, the taxable amount is taken to be the sum item taken in part of those two values (Cases 16-17/84 Commission v Netherlands and Ireland [1985] ECR 2356 and 2375; [1986] 1 CMLR 336). The importance of a payment in kind for the exchange determination of the taxable base should not let one forget that it is the supply which is the thing subject to VAT. The consideration must be capable of being expressed in an amount assessed in money, excluding any reference to estimated value based on objective criteria, such as the normal price (Case 154/80 225

4 Coöperatieve Aardappelenbewaarplaats [1981] ECR 445; [1981] 3 CMLR 337. See further Ben Terra and Kajus, A Guide to the European VAT Directive - VIII p31). The taxable amount is everything which constitutes the consideration. Therefore where payment is made partly in cash and partly in kind, the taxable amount of the new item is the sum of the two values. According to the Court of Justice in the Naturally Yours Cosmetics case (Case 230/87 Naturally Yours Cosmetics [1988] ECR 6365; [1989] 1 CMLR 797), "where a supplier ("the wholesaler") supplies goods ("the inducement") to another ("the retailer") for a monetary consideration... which is less than that at which he supplies identical goods to the retailer for resale to the public, on an undertaking by the retailer to apply the inducement in procuring another person to arrange, or in rewarding another for arranging, a gathering at which further goods of the wholesaler can be sold by the retailer to the public for their mutual benefit, on the understanding that if no such gathering is held the inducement must be returned to the supplier or paid for at its wholesale price, the taxable amount is the sum of the monetary consideration and of the value of the service provided by the retainer which consists in applying the inducement in procuring the services of another person or in rewarding that person for those services; the value of that service must be regarded as being equal to the difference between the price actually paid for that product and its normal wholesale price". Indeed, in that case the parties to the contract reduced the wholesale price of the pot of beauty cream by a specific amount in exchange for the supply of a service by the retailers, who arranged sales parties. In those circumstances, it was possible to ascertain the monetary value which the two parties to the contract attributed to that service; the value must be considered to be the difference between the price actually paid and the normal wholesale price (Case 230/87 Narurally Yours Cosmetics [1988] ECR 6365; [1989] 1 CMLR 797) Subsidies The expression "subsidies directly linked to the price of a transaction carried out by a taxable person" may be interpreted only in a strict and a literal sense. According to the EC Commission (Second Report from the Commission on the application of the common system of value added tax, COM (88) 799 final, Brussels 20 december 1988 p27). A subsidy is to be included in the taxable amount only if one or more of three conditions are met: - it constitutes the consideration (or a part of the consideration); - it is paid to the supplier; or - it is paid to a third party. It may be argued that the inclusion of subsidies in the taxable base is an application of the general principle that everything received from a third party must be considered as consideration (M van Hilten, Bancaire en financiële prestaties in de Europese BTW, Kluwer 1993 p254). Community subsidies paid out under the common organisation of the market in milk in order to promote sales, publicity and market research are not included in the taxable base: these subsidies are 226

5 treated as reimbursements (Second Report from the Commission on the application of the common system of value added tax, COM (88) 799 final, Brussels 20 december 1988 p27) Taxation on margin See further "Travel agents" and "Second-hand goods" (See further special regime ne 12) Foreign currencies Where information for determining the taxable amount is expressed in a foreign currency, the exchange rate is the latest selling rate recorded, at the time the tax becomes chargeable, on the markets of the Member States concerned. Some Member States are more flexible than others Private use and self-supply For the private use and the self-supply of goods, the taxable base 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 of the supply. Taxation of private use of goods is only possible where VAT paid on their acquisition was deductible (Case 50/88 Kühne [1989] ECR 1925; [1990] 3 CMLR 287). This is very important for some benefits in kind, such as cars in respect of which VAT is frequently disallowed in the Community. For the private use of goods forming part of the assets by the taxable person or by his staff, the taxable base will be the full cost to the taxable person providing such services. The same rule applies when the goods are used for purposes other than those of his business. Where the Member States have opted to tax the supply by a taxable person of a service for the purpose of his undertaking mentioned in Article 6 (3) of the Directive, the taxable base will be the open market value of the services supplied. The open market value of goods and services means the amount which a customer at the marketing stage at which the supply takes place would have to pay to a supplier at arm's length, within the territory of the country at the time of the supply under conditions of fair competition, to obtain the goods or services in question. It is only where there is no market that it is necessary to have recourse to a value other than the real value, or deemed value (Advocate General's Opinion in Case 230/87 Naturally Yours Cosmetics [1988] ECR 6365; [1989] 1 CMLR 797) Importation of goods The taxable amount is the value for customs purposes (art. 26 to 36 Customs Community Code and art 141 to 181 of the Regulation implementing the Customs Code). and includes taxes other than VAT together with incidental expenses insofar as they are not already included. 227

6 In relation to software, the Customs valuation rules are not identical to those applicable for import VAT. In the case of "normalised" or generally used software, the VAT Committee considered that there was a single import of goods, the whole value of which was to be taxed. In the case of specific software, it noted that there was both an import of goods (the physical support) and the supply of services (the data) (Second Report from the Commission on the application of the common system of value added tax, COM (88) 799 final, Brussels p29). According to Article 167 of the regulation implementing the Customs Code (Commission regulation (EEC) ne2454/93 of 2 July 1993), only the transporter medium bearing the data or instructions is taxable, regardless of whether the software is "normalised" or "specific". This does not include the value of the data or instructions, provided that their cost or value is distinguished from the cost or value of the transporter medium. Where information for determining the taxable amount on importation is expressed in a currency other than that of the Member State where the assessment takes place, the exchange rate is determined in accordance with the Community provisions governing the calculation of the value for customs purposes Intra-Community acquisitions of goods In the case of intra-community acquisition of goods, the taxable amount is based on the same elements as those used for supplies within a territory of a country. In the case of a transfer by a taxable person of goods from his undertaking to another Member State, the taxable base 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 of the transfer. The exchange rate is the latest selling rate recorded, at the time the tax becomes chargeable, on the most representative exchange market or markets of the Member State concerned, or at a rate determined by reference to that or those markets. 228