Taxation and Customs Union

Taxable transactions

What is a taxable transaction?

Transactions falling within the scope of the tax are taxable. Not all taxable transactions are taxed but can be exempt.
EU rules recognise 4 types of transaction on which VAT is chargeable (Article 2(1) VAT Directive):

Except for imports, for a transaction to be liable for VAT, it must involve payment. However, to prevent avoidance, evasion or distortion of competition, some transactions that do not involve payment are also treated as taxable.
For full details, see Articles 14-30 VAT Directive.

Supply of goods

What is a supply of goods?

Main rule

Other transactions considered as supply of goods

Supply of goods is the transfer of the right to dispose of tangible property as owner.
Article 14(1) VAT Directive

  • The transfer, by order made by or in the name of a public authority or in pursuance of the law, of the ownership of property against payment of compensation;
  • The actual handing over of goods pursuant to a contract for the hire of goods for a certain period, or for the sale of goods on deferred terms, which provides that in the normal course of events ownership is to pass at the latest upon payment of the final instalment;
  • The transfer of goods pursuant to a contract under which commission is payable on purchase or sale.

Article 14(2) VAT Directive

What is considered as a tangible property?
Tangible property includes any physical goods.
Electricity, gas, heat or cooling energy and the like is considered as a tangible property for the VAT purposes (Article 15(1) VAT Directive).
In addition, EU countries may consider as tangible property the following:

  • certain interests in immovable property;
  • rights in rem giving the holder thereof a right of use over immovable property;
  • shares or interests equivalent to shares giving the holder thereof de jure or de facto rights of ownership or possession over immovable property or part thereof.

(Article 15(2) VAT Directive).
Why is it important to classify transactions correctly?
Different rules apply for taxation of supply of goods and supply of services.
The differences may arise for example upon establishing the place of supply, VAT rate, chargeable event etc.

 

 

Transactions treated as supply of goods

In certain cases, use of goods may be considered as a supply of goods or services.

 

Intra-EU transfer of goods

Type of transaction

Conditions

Intra-EU transfer of goods
Article 17 VAT Directive

Business (taxable person) shall treat as a supply of goods the transfer of its business assets to another EU country when:

  • Business dispatches or transports its movable tangible property to another EU country;
  • This is done for the purposes of its business;
  • None of the exceptions listed in Article 17(2) VAT Directive  apply or they cease to apply.

Exceptions include:

  • Distance sale of goods taxed in the EU country of destination;
  • Transfer of goods for installation/assembly in another EU country by the supplier or on his behalf;
  • Supply of goods on board a passenger ship, aircraft or train;
  • Supply of gas, electricity, heat or cooling energy through a distribution system or network;
  • Certain exempt supplies of goods;
  • Transfer of goods for valuations or work on, if returned afterwards;
  • Transfer of goods for temporary use in relation with the supply of services.
  • Transfer of goods for temporary use (not more than 2 years) under conditions similar to the temporary importation with full exemption from customs duties.

 

Self-supply of goods for non-business use

Type of transaction

Conditions

Self-supply of goods for non-business use
Article 16 VAT Directive

Business (taxable person) shall treat as a supply of goods the final use of its business assets when:

  • VAT on goods or their component parts was fully or partly deductible;
  • Business uses those goods for non-business use such as private use or private use of its staff, disposes them free of charge;
  • Goods are not used as samples of gifts (use as gifts or samples is not considered as a supply of goods).

 

Self-supply of goods for business use

Type of transaction

Conditions

Self-supply of goods for business use
Article 18(a) VAT Directive

EU countries may require businesses (taxable persons) to treat as a supply of goods the final use of their business assets when:

  • Business produced, extracted, processed, purchased or imported goods for its business use;
  • VAT on such goods if they were purchased from a taxable person would be not fully deductible;
  • Business uses those goods for its business use.

 

Self-supply of goods for non-taxable use

Type of transaction

Conditions

Self-supply of goods for non-taxable use
Article 18(b) VAT Directive

EU countries may require businesses (taxable persons) to treat as a supply of goods the final use of their business assets when:

  • Business produced, extracted, processed, purchased or imported goods for its business use;
  • VAT on such goods was fully or partly deductible (either upon their acquisition or upon a supply for business use);
  • Business uses those goods for non-taxable area of its business.

 

Self-supply of retained goods when stopping trading

Type of transaction

Conditions

Self-supply of retained goods when stopping trading
Article 18(c) VAT Directive

EU countries may require businesses (taxable persons) to treat as a supply of goods the use of their business assets when:

  • Business ceases its economic activities;
  • Business or its successors retain the goods;
  • This is not considered as a non-taxable transfer of business assets;
  • VAT on such goods was fully or partly deductible (either upon their acquisition or upon a supply for business use).

 

Exception for transfer of business assets

Type of transaction

Conditions

Exception for transfer of business assets
Article 19 VAT Directive

EU countries may consider that no supply of goods has taken place and that the recipient is the successor to the transferor when:

  • Business transfers totality or part of its business assets;
  • Such a transfer is done for consideration or without it or as a contribution to a company.

If the recipient is not wholly liable to tax EU countries may introduce special rules to avoid distortion of competition.

Supply of services

 

 

What is a supply of service?

Main rule

Examples of transactions considered as supply of services

Supply of services is any transaction which does not constitute a supply of goods.
Article 24 VAT Directive

  • the assignment of intangible property, whether or not this is a document establishing title;
  • the obligation to refrain from an act, or to tolerate an act or situation;
  • services performed under (i) the law or (ii) an order made by or on behalf of a public authority.

Article 25 VAT Directive

 

Transactions treated as supply of services

 

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

Type of transaction

Conditions

Self-supply of services for non-business use, treated as supply of services
Article 26(1)(a) VAT Directive

Business (taxable person) shall treat as a supply of services the temporary use of its business assets when:

  • VAT on goods was fully or partly deductible;
  • Business uses those goods for non-business use such as private use or private use of its staff.

The difference with the self-supply of goods for non-business use is that in this case the goods are only used for those purposes temporary as opposed to the final use of goods.
EU countries may decide to treat it as non-taxable transactions if this does not lead to distortion of competition.

 

Self-supply of services for non-business use

Type of transaction

Conditions

Self-supply of services for non-business use
Article 26(1)(b) VAT Directive

Business (taxable person) shall treat as a supply of services transactions when:

  • Business supplies services free of charge;
  • Those services are used for non-business use such as private use or private use of its staff.

EU countries may decide to treat it as non-taxable transactions if this does not lead to distortion of competition.

 

Self-supply of services for business use

Type of transaction

Conditions

Self-supply of services for business use
Article 27 VAT Directive

EU countries may require businesses (taxable persons) to treat as a supply of services the self-supply when:

  • Business supplies services to itself (i.e. uses those services);
  • VAT on such services if they were purchased from a taxable person would be not fully deductible;
  • Business uses those services for its business use.

 

Supply of services by intermediaries

Type of transaction

Conditions

Supply of services by intermediaries
Article 28 VAT Directive

It shall be considered that business (taxable person) received and supplied services when:

  • It acts as an intermediary in the supply of services on behalf of another person;
  • Those services are supplied in its own name.

Intra-EU acquisition of goods

What is an intra-EU acquisition of goods?

Intra-EU acquisition of goods is the acquisition of the right to dispose as owner of movable tangible property
dispatched or transported to the person acquiring the goods, by or on behalf of the vendor or the person acquiring the goods,
in a EU country other than that in which dispatch or transport of the goods began.

Example
A French company orders an aircraft part from a German manufacturer. The manufacturer arranges for the part to be air-freighted to the French company’s factory in Toulouse.

The French company has made an intra-EU acquisition of goods. The manufacturer, on the other hand, has made an exempt supply of goods.

An intra-EU acquisition of goods is a taxable transaction, on which the acquirer is liable to pay the VAT under the reverse-charge mechanism.

Article 20 VAT Directive

When intra-EU acquisition is subject to VAT?
The following intra-EU acquisition of goods for consideration is subject to VAT:

  • Intra-EU acquisition of goods by a taxable person, or a non-taxable legal person, where the vendor is a taxable person not eligible for the exemption for small enterprises and who is not covered by Articles 33 or 36;
  • Intra-EU acquisition of new means of transport;
  • Intra-EU acquisition of products subject to excise duty, by a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT.

(Article 2 VAT Directive)


When intra-EU acquisition is not subject to VAT?
Intra-EU acquisition of goods is not subject to VAT where the following conditions are met:

  • goods except those referred to in Articles 4, 148 and 151, new means of transport and products subject to excise duty;
  • by a taxable person for the purposes of his agricultural, forestry or fisheries business subject to the common flat-rate scheme for farmers;
  • or by a taxable person who carries out only supplies of goods or services in respect of which VAT is not deductible,
  • or by a non-taxable legal person;
  • if during the current calendar year, the total value of intra-EU acquisitions of goods does not exceed a threshold determined by EU country and
  • if during the previous calendar year, the total value of intra-EU acquisitions of goods did not exceed that threshold;
  • unless that taxable person or non-taxable legal person opts for taxation (the choice to tax applies at least for two years).

In addition, intra-EU acquisition of goods the supply of which within that EU country would be exempt pursuant to Articles 148 and 151 shall also be not subject to VAT.
(Article 3 VAT Directive)

 

 

 

Transactions treated as intra-EU acquisition of goods

 

Intra-EU acquisition of goods imported by non-taxable legal persons

Type of transaction

Conditions and application

Intra-EU acquisition of goods imported by non-taxable legal persons
Article 20(2) VAT Directive

The following shall be considered as intra-EU acquisition of goods:

  • Non-taxable legal person acquires goods outside the EU;
  • He imports those goods in one EU country and transports or dispatches to the final destination in another EU country.

The non-taxable legal person must:

  • Pay import VAT in the EU country of importation (unless another person is designated as liable for it);
  • Account for intra-EU acquisition in the EU country of destination of goods;
  • That import VAT is refunded by EU country of importation when the person can prove that VAT on intra-EU acquisition was accounted for.

 

Article 21 transactions

Type of transaction

Conditions

Article 21 transactions
Article 21 VAT Directive

Business (taxable person) shall treat as an intra-EU acquisition of goods for consideration the final use of goods where:

  • Business produced, extracted, processed, purchased, imported or acquired goods for its business use in one EU country;
  • It dispatches or transports those goods into another EU country;
  • In that EU country it uses those goods for its business use.

 

Article 22 transactions

Type of transaction

Conditions

Article 22 transactions
Article 22 VAT Directive

The final use of goods by NATO forces shall be treated as an intra-EU acquisition of goods for consideration where:

  • NATO forces use the goods for its needs or for their accompanying civilian staff;
  • those goods were not purchased under the local VAT rules of the EU country in which they are stationed;
  • the importation of those goods would not have been eligible for exemption in the normal way for such transactions under Article 143(1)(h) VAT Directive.

 

Article 23 transactions

Type of transaction

Conditions

Article 23 transactions
Article 23 VAT Directive

EU countries shall treat as an intra-EU acquisition of goods for consideration the transactions where:

  • if that transaction would have been treated as a supply of goods if carried out by a taxable person in that EU country.

Importation of goods

Importing goods is a taxable transaction.
Under EU VAT rules import means the entry into an EU country of:

Free circulation means:
- the goods comply with all import formalities
- the receiving country has levied any customs duties or equivalent charges due (with no reductions)

(Article 29 Treaty on the Functioning of the EU)


Does the import have to be performed by a business to be taxable?
No – anyone who imports goods into the EU (business, non-taxable legal entity - such as a public body, private person, etc.) is liable for VAT on the transaction.