Taxation and Customs Union

Taxable amount

What is meant by the taxable amount?
The taxable amount is the amount in respect of a taxable transaction on which VAT is chargeable (usually, the price of the goods or services).
In the simplest situation, if A sells goods over the counter to B for EUR 50, then the taxable amount is EUR 50, on which A must charge B VAT at the appropriate rate, and B pays A EUR 50 plus the VAT.
In order to cover more complicated transactions and circumstances, the VAT Directive contains a set of provisions defining and clarifying what constitutes the taxable amount. It distinguishes between three different kinds of transaction:

Supply of goods or services

The basic rule

The taxable amount in case of supply of goods and services shall include
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.

(Article 73 of VAT Directive)
Thus, if a plumber charges a customer a fee for servicing a washing machine plus the cost of travel to the customer’s premises, the taxable amount includes, along with the fee for the service, the recharge of travel costs.

What must be included and what not included in the taxable amount?

Included in the taxable amount

Not included in the taxable amount

  • Taxes, duties, levies and charges, excluding the VAT itself ;
  • incidental expenses, such as commissions, packing, transport and insurance costs that the supplier recharges to the customer;
  • subsidies directly linked to the price of the supply.
  • 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; or
  • 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.

(Article 73, 78, 79 VAT Directive)

Currency considerations

If a foreign currency is used in the documents required for calculation of the taxable amount, the exchange rate will be the latest recorded selling rate at the time the VAT becomes due on that EU country’s most representative exchange market(s). EU countries may also use a rate determined by reference to that market (s).
Businesses may use instead the European Central Bank’s latest published exchange rate (using euro exchange rate for conversion between currencies other than euro). EU countries may require notifying them about using this option.
For certain categories of transactions or certain categories of taxable persons EU countries may decide to use the exchange rate based on EU customs rules for calculation of the customs value.
(Article 91 VAT Directive)

Returnable packaging material

Where goods are supplied with returnable packaging material, EU countries may choose between:

  • excluding the cost of that material from the taxable amount and taking the measures necessary to adjust the amount if the material is not returned or
  • including the cost of that material in the taxable amount and taking the measures necessary to adjust the amount if the material is returned

(Article 92 VAT Directive)

Cancellation or non-payment

Where a supply is cancelled or refused or payment for the goods or services is either wholly or partly withheld, or the price is reduced after the supply takes place, the taxable amount must be reduced accordingly. The conditions for such reductions shall be determined by the EU countries.
EU countries may, however, derogate from this rule in the case of partial or total non-payment.
(Article 90 VAT Directive)

 

Exceptions

A number of exceptions apply to the basic rule, to cover transfers abroad, prior deduction of input VAT and transactions with related persons. These relate to:

Transactions treated as supply of goods or services

Type of transaction

Taxable amount

Intra-EU transfer of goods
[link-taxable transactions]
Article 17 VAT Directive

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.

Article 76 VAT Directive

Self-supply of goods:

  • for non-business for non-taxable use
  • of retained goods when stopping trading

[link-taxable transactions]
Articles 16 and 18 VAT Directive

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 self-supply takes place.

Article 74 VAT Directive

Self-supply of services:

  • For non-business use;
  • Self-supply of goods for non-business use, treated as supply of services

[link-taxable transactions]
Article 26 VAT Directive

The taxable amount is the full cost to the taxable person of providing the services.
Article 75 VAT Directive

Self-supply of services for business use
[link-taxable transactions]
Article 27VAT Directive

The taxable amount is the open market value of the service supplied.
Article 77 VAT Directive

Transactions with related persons

What does this exception cover?
This exception to the basic rule for defining the taxable amount on a supply of goods or services may be thought of as the VAT equivalent of transfer-pricing rules for direct taxes.
It essentially provides that EU countries may substitute market value for the taxable amount in respect of certain non-arm’s length transactions carried out between related persons.
The rule is that:

  • In order to prevent tax evasion or avoidance
  • EU countries may take measures to ensure
  • that the taxable amount in respect of certain supplies of goods or services
  • between persons with
    • family or other close personal ties or
    • management, ownership, membership, financial or other legal ties

is the open market value.


(Article 80 VAT Directive)
What transactions does the market-value rule cover?
Transactions where the consideration is lower than the open market value and:

  • the customer does not have a full right of deduction of the input VAT or
  • the supplier does not have a full right of deduction and the supply is exempt or
  • the supplier does not have a full right of deduction.

(Article 80 VAT Directive)


What is meant by ‘open market value’?
Open market value means:
the full amount that, in order to obtain the goods or services in question at that time, a customer at the same marketing stage at which the supply of goods or services takes place, would have to pay, under conditions of fair competition, to a supplier at arm’s length within the territory of the EU country in which the supply is subject to tax.
Where no comparable supply of goods or services can be ascertained, ‘open market value’ means:

  • in respect of goods, an amount that 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;
  • in respect of services, an amount that is not less than the full cost to the taxable person of providing the service.

(Article 72 VAT Directive)


What is meant by ‘legal ties’?
Legal ties may include the relationship between an employer and employee or the employee’s family, or any other closely connected persons.

Transactions with investment gold

What does this exception cover?
The supply, intra-EU acquisition and the importation of investment gold is normally exempt without the right to deduct (Article 346 VAT Directive).
Where goods or services are supplied to a customer who has provided the supplier with exempt investment gold to be used as the basis for working (as a result of which the gold loses its exempt status), EU countries may choose to prescribe that the taxable amount in respect of the supply must include the open market value of the investment gold at the time of that supply.
(Article 82 VAT Directive)

Importation of goods

What is the taxable amount when goods are imported?

The taxable amount on which import VAT is payable when goods are imported from outside the EU is the value for customs purposes of the goods including duties, taxes, other charges and incidental expenses which were not already included in the customs value.
(Article 85 VAT Directive)

What must be included and what not included in the taxable amount?

Included in the taxable amount

Not included in the taxable amount

If not already included in the customs value:

  • Taxes, duties, levies and other charges due outside the EU country of importation, and those due by reason of importation, excluding the VAT to be levied;
  • incidental expenses, such as commission, packing, transport and insurance costs, incurred up to the first place of destination within the territory of the EU country of importation;
  • incidental expenses resulting from transport to another place of destination within the EU, if that other place is known when the chargeable event occurs.
  • Price reductions by way of discount for early payment or
  • price discounts and rebates granted to the customer and obtained by him at the time of importation.

 

(Article 86, 87 VAT Directive)


What is the first place of destination?
For these purposes, the ‘first place of destination’ means the place mentioned on the consignment note or on any other document under which the goods are imported into the EU.
If no such mention is made, the first place of destination is deemed to be the place of the first transfer of cargo in the EU country of importation.

 

Reimportation of processed goods

Where goods that have been temporarily exported from the EU in order to be repaired, processed, adapted, made up or reworked are then reimported, the taxable amount on the reimportation must be the same as would have applied if the repair, processing, adaptation, making-up or reworking had taken place in the EU country into which the goods are reimported.
(Article 88 VAT Directive)

 

Currency considerations

If a foreign currency is used in the documents required for calculating taxable amount, the exchange rate is determined by the EU customs rules on calculation of the customs value.
(Article 91 VAT Directive)

 

Intra-EU acquisition of goods

Basic rule

Type of transaction

Taxable amount

Intra-EU acquisition of goods

The basic rule is that the same factors must be used as for a supply of goods or services (see Taxable amount: supply of goods or services) in the EU country in which the acquisition takes place.

Specific rules

Type of transaction

Taxable amount

Article 21 transactions
Article 22 transactions
[link-taxable transactions]
Articles 21, 22 VAT Directive

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 of the supply.

Article 83 VAT Directive

Intra-EU acquisitions of goods subject to excise duty
Article 84 VAT Directive

The excise duty is included in the taxable amount for the acquisition.
If, following the acquisition, the person making the acquisition obtains a refund of the excise duty from the EU country in which the transport or dispatch of the goods began, the taxable amount for the acquisition must be reduced accordingly.